Why FDI in retail will lead to unemployment and inflation in India ?

What is FDI in retail?

FDI (Foreign Direct Investment) in retail means that foreigners will invest their money in India;-

a)     In buying property – thereby increasing prices, leading to inflation.

b)     Creating infrastructure i.e. building modern technology Malls – which technology is not new already available in India.

c)     Sell foreign made goods in India thereby taking away Indian money to foreign lands by way of profits.

Why FDI leads to unemployment?;

1. Because of lower needs of employees.

A local retailer in a shop of 8’ *10’ has 1-2 proprietors having 3-4 salesmen plus 4-5 support salesmen for packaging and delivery. Thus a space of 80-100 square feet gives employment to at least 10 persons or one person per 10 sq feet.

Whereas a Mall has one counter of minimum 12‘ * 15’ has only one salesman the entire mall has an average size of 197,000 square feet.

http://www.statisticbrain.com/wal-mart-company-statistics/

Number of employees are 20,00,000 in total of 4723 stores. That means 423 employees per store having an average area of 197,000 square feet or one person per 465 square feet. Indian retailers in same area employ 46-47 persons.

So unemployment has increased by whopping by almost 50 times or 47 employees per 500 square feet or in other words FDI reduces employment by 47 employees per 500 square feet.

2. Because of lower Indian made goods sold in India.

Today 100% products manufactured in India are sold in Indian markets. Under FDI they will buy only 30% of their needs from India meaning Indian factories will have to produce at only 30% levels making them unviable. Indian factories will be forced to close and factories will open in China making Indians unemployed and Chinese more employed. 20 crores of Indian homes will go in darkness.

Why FDI leads to inflation?;

Automatic increase in prices of Gas, petrol and diesel;

Previously India was importing gold and petrol and thus price of dollar was hovering about Rs 50. Now with FDI in retail all retail items are being imported from USA and being bought in dollars. Thus dollar rates have gone up from 50 to Rs 60+ and even Rs 70 initially. This has led to increase in petrol, gas, diesel which in turn leads to increase in cost of all items due to increase in transportation costs.

Increase in inland and transportation costs;

Previously all goods were locally transported. Now most goods have to travel all the way from USA to India and this is additional costs incurred for bring goods inland to Indian ports and then to local retail malls.

Increase of cost of goods because of increased cost of salary and materials which is paid to foreign workers in dollars;

Now goods are first handled by Americans in USA who are paid in dollars where minimum wages are $9 per hour or $ 4500 per moth or Rs 3,00,000 per person. All this salary is paid in USA to USA employees but borne by Indians buying foreign goods in India and added to cost of goods sold in India. This leads to multiplier effect whereby even Indian goods inch up higher to match price of foreign goods leading higher prices / inflation.

Increased input cost;

All foreign goods are manufactured in China which then transports to USA and than businessman in USA exports to India or some goods are made in USA or other countries. All there cost is incurred in Dollars which was Rs 50 per dollar so all goods are priced much higher because of implicit cost (incurred in Dollars whether of materials, labour, land or other inputs). This leads to cascading effect whereby even Indian goods inch up higher to match price of foreign goods leading higher prices / inflation.

Myths busted;

Direct Purchasing from farmers at higher prices

Direct sales to Consumers at cheaper rates.

There is practically no direct purchasing from farmers. Foreigners are not coming to India to enrich Indian farmers or Indian public but to enrich USA and themselves at cost of Indian public. Farmer of Punjab know it by 1^st hand experience that Pepsi promised to buy Potato and tomato from them for manufacture of potato chips and tomato sauce but after getting clearance they said size of Indian potato is small and taste of Indian tomato is too khatta hence they imported all their needs from abroad. Same is with MacDonald’s who are buying shiploads of vegetables from abroad giving impetus to farmers of USA and UK. One may compare prices of vegetables in Malls and their prices in traditional shops which are 20-30% cheaper.

More jobs:

Congress is calculating number of jobs on the basis of people to be employed in Foreign Malls they are not considering reduction of jibs due to malls which is 50 times more. For every one person employed in a mall about 50 will loose jobs leading to millions of homes going in darkness in India.

More income by more taxes;

Because of higher price there is higher sales tax, central tax, Octroi  and also in some cases there is custom duty and import duty. All these taxes and duties will be added in prices. Who will pay it- The Indian consumer by its hard earned money.

Kapil Dev Aggarwal

Top ranked economist Yahoo.answers india economics. 2011