FDI in retail - liberalization or suicide

Apparently, the government is again contemplating FDI in retail sector. Since the Left parties are opposed to it, it has become fashionable for the "young" and "progressive" to pooh pooh the concerns and recommend this as a measure of India's "opening up". Surprisingly, the proponents of liberalization (assuming such are in a majority) do not themselves seem to have confidence in the businesses they recommend - witness the abysmal (single digit) ownership of equity of Indian companies among the Indian public. The pity is, that most such free-market proponents are unknowingly acting as lobbyists - for free. The foreigners know better - atleast they demand a price to lobby! Remember Enron?

So what is at stake here? A Wal-mart is almost the size of Indian retail industry, yet employs only 5% of the people retailing in India supports. In a country where job creation significantly lags additions to the labour force, any sensible government (other than one bought out by lobbyists) will have to wonder as to the pay-off of this "liberal" policy.

Even assuming that we accept that law of the jungle should work and only the strong should survive - what exactly is the argument for "foreign" ownership? Do Indian entrepreneurs not have the skill or risk taking capability to set up and run retail businesses - there is after all no bar on them doing so. So why this shrill demand for opening up to foreign investors?

The few companies that have ventured into retail have yet to generate economic return on capital. Stripped of accounting shenanigans, no company in the business has generated a return that meets its cost of capital. On the other hand, many "innovations" of "organized retail" - extending credit, home delivery etc. are already offered by the friendly neighbourhood retailer. Clearly, the only way that "organized retail" will complete is by adopting competition destroying methods of discounting and taking upfront losses - leveraging their ability to raise "free capital" from the stock market. Consumers will suffer int the longer term as cartels forces prices up once the small retailer is driven out of business. Is this what "free markets" are supposed to foster?

Good for the market - terrible for the country

A recent development in the stock market has the potential to harm India and Indians in the long term. The irony is that this is a result of "progressive policies". The development in question is the acquisition of Nicholas Piramal's pharmaceutical business by Abbott. In itself, the acquisition raises few issues. However, it portends a resurgence of multinational pharma companies in the Indian market, with consequent detrimental effects to the lives of Indians.
 
I have long been opposed to so-called "Intellectual property" - which, in my opinion, is just the latest way to exploit the poorer sections of society. Especially after physical assets/resources required for human existence have been captured by the "developed world". Using the power of lobbyists and under the guise of IP, poor countries like India have been forced to accept product patents. With this come expensive, and unaffordable medicines, and usurious health insurance costs - social costs we could do without.

India shook off its dependence on foreign medicines and developed a thriving domestic pharma business when it abandoned product patents and recognised only process patents. Consequently, Indian pharma industry today is well developed, with excellently developed chemistry skills and low cost production - benefitting not only Indian patients, but those around the globe - including those in "regulated" markets. This is now set to change - with India having succumbed to political pressure and signed up for product patents a few years ago.

Surprisingly despite countries like the USA drowning in health care costs, so-called free marketeers continue to push the case of "IP"  - and poor countries like India acquise. If the above seems overly leftist (after all the patent laws in India do offer compulsory licensing and price setting by the government) - well, read this

Equity market outlook - Apr 2010

While most commentators on the market have been very bullish on Indian market prospects, I find that there is a potential to hit many an air-pocket. Even if we avoid most of these, I think the upside is not very large. My report (as part of BRICS research) - published in April.

">India Equity market outlook - April 2010

Beware of what you ask for!

I have, after a gap of more than a decade, started writing "research" on the macro aspects of the market. Here is a recent comment I made - in its unedited form:

The Street believes that higher oil prices are detrimental for Indian equity markets. In fact, recent broker reports suggest that if oil prices were to fall globally, Indian economy, and by extension, the Indian stock markets, would rally.

The belief is misplaced – the data does not support the thesis. A look at the graph above reveals that the markets tend to move either independent oil price movements (for example in the first few months shown in the graph above), or in the same direction as oil prices. Clearly, it appears that oil price declines likely happen at a time of reduced economic activity. Consequently any potential savings in import costs is perhaps offset by a more-than-proportionate reduction in output growth, adversely effecting corporate profits. A drop in global prices of crude is certainly NOT what we should be asking for

The nuclear sell-out progresses

The government introduced the nuclear "no-foreign liability" bill in Parliament on the last day of the session. Apparently, this was on the basis of a deal with some parties in opposition that the bill will be referred to a committee of the house that would be chaired by the opposition. As expected, this has not happened, with the bill being referred to a committee in the Rajya Sabha - chaired by a congressman. While the SP is crying foul, the government is secure in the thought that they have thrown a bone in the direction of the SP in agreeing to the obnoxious and racist suggestion of the SP and other parties of their ilk to include caste in the latest census. Not surprisingly, since this is a Congress initiative, there is no protest (a few columnists aside) in the English media to this extremely retrograde and communal move. 

The congress spin doctors initially tried to explain away the infirmities of the nuclear bill though half-truths and obfuscation. Brahma Chellaney's article here is worth a read for getting a real picture on the issues with the bill. But with the PM busy out-sourcing and sacrificing India's defence and foreign policies to American interests, and the key opposition party in slumber, we can only hope that the many gods Indians pray to are watching over India's interests.