The Tribune, Chandigarh, India

Metro movement
It’s time Chandigarh, Ludhiana got it

Bringing sense to any urban mess, especially roads, is a tough task, if at all possible. Delhi Metro has, however, demonstrated that it can be done. Suitably impressed, Chandigarh and Punjab (for Ludhiana) have also announced Metro plans. Both are at the same stage of proposals — project reports are ready, but wondering how exactly to fund it. It is bold of the two cities to go for Metro, for they are relatively small in size and population, and have drawn criticism for such expensive dreams. We have to realise, however, that these projects are not to address today’s need — which is no less desperate — but the next two-three decades. The planning and execution itself could take a decade.

The two biggest challenges to the projects are, of course, money and land. Sites for terminals are being provided for, but passing through certain congested areas would be a challenge. Going underground takes care of that to an extent, but some above-ground construction activity as well as land requirement would still be there. Delhi Metro has been an example of how to do such things efficiently, without hassling commuters on the road. How Chandigarh and Ludhiana manage will depend on who executes the projects. Punjab is planning a public-private partnership, a process liable to be messy. The state is unsure of its own abilities — and sources — to contribute. The elevated road and power projects in the state have not been very inspiring. The UT, funded by the Centre, might have it easier, when it does.

Both cities have projected five years for completion once the work begins. Even if it begins next year, we are looking at 2018, by when one can well expect traffic to have come to a near halt. The plan is thus not a year too early, and it would be good for the Centre to hasten its part of clearances and contribution. The importance of rapid public transport cannot be overstressed. Production efficiency, fuel, environment, safety, quality of life, and equality (transport for all), the entire gamut of urban economy depends on it.

Remove barriers
Indian students contribute to life abroad

Even as the UK prepares to grant hundreds of thousands of visitors’ visas to enable people from all over the world to see the Olympics, the British government has been tightening immigration policies to an extent where foreign students, including those from India, who want to study in the UK are being discouraged. Lord Karan Bilimoria, the Indian-born British Peer, recently joined many eminent persons, including business leaders and Vice-Chancellors, who have been protesting against the changes to visa rules, especially the restrictions on foreign students and graduates to work in the UK. No wonder, the UK has seen a steep drop in student applicants from abroad while nations with more liberal visa policies like Canada, Australia and even the US have seen a rise in the number of foreign students. The British government is well within its rights in determining the number of immigrants it wants, but it needs to keep in mind the social and economic implications of its decisions and remember that immigrants contribute to the local culture, society and economy.

We must recognise that migration to distant lands as such is nothing novel. It is the complex web of social relationships that it produces and the demand for its regulation and control that is new. It has now been established that immigrants are over-represented in the UK in medical and dental professions, besides having a sizeable hold as dispensing chemists and pharmaceutical wholesalers. Besides, immigrants have attained tremendous success as entrepreneurs, which enables them to generate employment opportunities for others. In any case, all students who come from abroad do not settle in the country they study in. In the increasingly globalised world of today, they may well be born in one place, go to school somewhere else, work in another country and retire at a totally different place. International students are the “best and the brightest” minds. Wherever they go, they enrich the environment they are a part of. The long-term effect of the new immigration policy of the UK may well be detrimental to that country if it ceases to be an attractive destination for foreign students.

Thought for the Day

A teacher is a person who never says anything once. — Howard Nemerov

ARTICLE

All over South China Sea
Beijing asserts to protect its interests
by Harsh V. Pant

AS was expected, there was no movement on the contentious South China Sea dispute at the ASEAN summit held in Phnom Penh a few days back. But what was striking was the fact that the looming shadow of China prevented the meeting from even issuing a joint statement for the first time in the organisation’s 45-year history. China succeeded in playing divide and rule politics, thereby ensuring that the dispute remains a bilateral matter between Beijing and individual rival claimants. As a consequence, the waters of the South China Sea will not be calm any time soon.

At a time of domestic political transition, China is embroiled in a range of disputes with its neighbours. Conflict in the region has the potential to disrupt global trade flows. The South China Sea waterways carry around half of the world’s total trade and are claimed in whole or part by China, the Philippines, Vietnam, Malaysia, Taiwan and Brunei. Proven and undiscovered oil resources in the South China Sea are estimated to be as high as 213 billion barrels. Fears have been rising in Asia that China is seeking to use its growing maritime might to dominate not only the hydrocarbon-rich waters of the South China Sea but also its crucial shipping lanes, the lifeline of regional economies.

The Philippines and Vietnam, in particular, have been raising concerns about China’s assertiveness in the South China Sea. The Philippine President, Benigni Aquino III, has even suggested that he may ask the US to deploy spy planes over the South China Sea to help monitor disputed waters in the region. The impasse between China and the Philippines over Scarborough Shoal, which started when Philippine naval vessels discovered Chinese fishing boats in a lagoon of the Shoal, shows no signs of abating with China refusing to remove its fishing boats from the Shoal.

Just weeks back, the state-owned China National Offshore Oil Company (CNOOC) opened nine blocks for exploration in waters. The state-run Chinese media has been very vocal about states like the Philippines and Vietnam asking Beijing to “teach them an unforgettable lesson when it is time to hit back”.

Japan has also asked China to clarify its maritime claims. Though Japan may not have a direct stake in the dispute, it has increasingly taken a proactive role in the dispute. Tokyo remains worried about the implications of China’s assertiveness in South China Sea for its own dispute with China in East China Sea. The manner in which South China Sea issue gets resolved will have significant implications for maritime conflicts in the region and beyond.

China blocked efforts to resolve long-running tensions over claims in the disputed South China Sea, warning participants at the ASEAN summit that it is “crucial” they leave the issue out of their discussions. The US had been hoping that ASEAN member states would work on developing a code of conduct for activities in the sea to ensure future disagreements are resolved amicably and has been pushing the ASEAN nations to unify around a legally binding code of conduct based in international maritime law as a means of managing disputes and cultivating ASEAN as a partner in engaging China.

Despite agreeing to draft a code of conduct almost a decade back, there has been little movement towards completion primarily because of China’s position that disagreements should be settled on a bilateral rather than a multilateral basis. China has refused to discuss the South China Sea dispute with ASEAN as a group because they want to negotiate on a one-to-one basis where they are much bigger than any individual Southeast Asian country and they can bully their interlocutors seriatim. But there is a clear need to stress the importance of principles such as the freedom of navigation, respect for international law and unimpeded lawful commerce in the South China Sea.

By putting up for global bidding a Vietnamese petroleum block under exploration by an Indian oil company China has forced India into a diplomatic logjam. Not surprisingly, India was very vocal about its concerns at the ASEAN Regional Forum meeting in Cambodia demanding “access to resources in accordance with principles of international law”. New Delhi, which so often likes to sit on margins, can no longer afford the luxury of inaction if it wants to preserve its credibility as a significant actor in East and Southeast Asia. China’s assertiveness is no good news for the region but it should be particularly troubling for India.

Beijing’s rapidly rising defence expenditure, its expansive maritime sovereignty claims, its aggressive behaviour pursuing them, its support for states such as North Korea and Pakistan, and its non-transparent military build-up all raise questions about its willingness to act as a responsible stakeholder in the region. How to manage China’s rise and mould its behaviour will be one of the biggest diplomatic challenges facing New Delhi in the coming years. Many in India argue that given the high stakes that China and India have in each other’s economies, conflict between the two is highly unlikely. But as tensions in the South China Sea exemplify, economic interdependence has never really been an antidote to conflict. New Delhi should watch China’s behaviour closely and learn due lessons in dealing with the rising dragon in its vicinity.

The writer teaches at King’s College, London.

MIDDLE

The rise of a republic
by B.K.Karkra

By the time I was born in 1937, some of the battles of our war of Independence had already been won. It was now just a matter of time. The country of the 40 crore people having woken up, there was hardly any scope for the British to hang on here. The last two nails in their coffin were driven by their bankruptcy-like plight in the aftermath of the Second World War and the ‘Quit India’ movement in the subcontinent.

When the freedom finally dawned on the 15th of August, 1947, quite a few of our freedom fighters, including the ones who had escaped the gallows or the firing squads by a whisker, were still around. I, as a 10-year-old then, felt something like what Wordsworth had spontaneously said on the breakout of the French Revolution: “Bliss was in that dawn to be alive; to be young was very heaven”. Almost every building worth the name was aflutter with the tricolour of the Congress or the saffron triangle of the RSS. Sadly, all this patriotic exuberance was to be followed by the shame of Partition.

By 1952, I was a student of Hans Raj College at Pahargunj in New Delhi. Next year on the 26th of January I got a chance to witness the Republic Day Parade on at Rajpath. The ethos then was entirely different. The crowd at the place was not all that thick as we find these days and the security arrangements were not all that stifling. People could have a much closure look at their leaders and they then had the image of being “the bravest and the best” among us. Though some smart ones had jumped in to the ring for loaves and fishes of office from out of nowhere and had driven the self-respecting freedom-fighters to the margins, there were hardly any scamtainted figures among them.

The thickest concentration of the crowd formed close to the VVIP box. After the parade was formally over, the crowds started melting quickly. Some die-hards like me who were positioned near Vijay Chowk decided to linger on to have an eyeful at the retreating pageantry. We were not to be disappointed that day. First to come was Dr Rajendra Prasad, the first President of our Republic, in his horse-driven buggy, folding hands to the people to his right and left in all humility. A few hilarious young men were perched on the edge of the South Block platform with their box-type camera. When they tried to take his picture, he happened to sway to the other side. These youngsters shouted to draw his attention towards their camera and he obliged!

He was followed by Pt. Jawaharlal Nehru, the country’s Prime Minister. There was a surge in the crowd as the smiling Panditji came in view in his open car. The people seemed to be proud to have this handsome man of high calibre as their leader and he got lustily cheered by them. This left no one in doubt as to who the real leader of the nation was at that time.

I really wonder these days when I would next see similarly lit faces of our people at the sight of our leaders.

OPED-BUSINESS

Making FDI in retail inclusive
Organised retail with foreign direct investment is proposed as a solution to farm sector problems. Does retail trade in India really need FDI? How can the state engage with new domestic and foreign market players?
Sukhpal Singh

THE changing consumer trends and rising consumer incomes, especially in the non-farm sector and in the urban areas, are leading to a higher demand for high-value crops such as fruits and vegetables in India which can help primary producers diversify their production away from cereals. Nearly 16% of small and marginal farmers grow vegetables compared with 14.8% and 10.5% of medium and large farmers, respectively. Fruits and vegetables (F&V) are more suitable for small land-holders than grain crops as they are more labour intensive, provide recurring income, have high value markets (domestic and export), offer value addition possibilities and are a mechanism of risk management against the field crop failure risk.

Therefore, the major challenge is to include marginal and small farmers in the retail growth. But F&V crops are input intensive, require more post-harvest handling, are more perishable and their profitability is dependent on market (i.e. quality/standards which are changing rapidly). They also suffer from high wastage/rejection, there is no Minimum Support Price (MSP) or protection against price risk, and local markets are thin. Thus, it is a high-risk business and requires good market linkages for viability.

Enter Indian retailers

Retailing contributes about 15% of India’s gross domestic product (GDP) and 8% of employment. But only 4% of the 15 million retail outlets are bigger than 500 sq. ft. and almost all are family owned, and in 2011, modern retail had 7% share in the total retail sales. During the last decade, there have been many corporate entries in the fresh produce retail sector, notable being Reliance Fresh, Spencer’s, Aditya Birla Retail Limited’s More, Namdhari Fresh, Food World, and Heritage Fresh. The large majority (around 75%) of modern private retail came in from 2006 to 2010. Food and grocery market sales accounted for a 73.2% share of the hypermarket, supermarket, and discount formats in 2009. The nature of modern retailing has changed over time in terms of store formats. It shows that supermarket chains have moved more towards hyper and neighbourhood formats, leaving supermarket and department store formats. Further, in most cases, fruits and vegetables accounted for only about 20% of their sales turnover.

The issue of FDI in retail trade has been hanging fire for the last 15 years ever since 100% FDI in wholesale cash ‘n’ carry trade was permitted in January 1997 on a case- by-case basis. After that, the N K Singh Committee on FDI in retail trade in 2002 suggested the ban to be continued, which led to the 10th Plan dropping the proposed recommendation on FDI in retail trade. Then, in early 2006, 51% FDI in single brand retail trade (SBRT) was allowed. Since 2007, all the major wholesale cash ‘n’ carry players like Wal-Mart, Metro and Carrefour have set up shop in India and have multiple outlets ranging from two to as many as 14.

Reliance Retail, an Indian corporate, made an entry into the wholesale sector with a store ‘Reliance Market’ in Ahmedabad in 2011. Global retail chains have also been present in India in retail through licensing/franchising arrangements like SPAR (global supermarket with more than 12,000 stores in 33 countries) has a licensee -Max Hypermarkets of Dubai-based Landmark group with 10 stores in India.

Stores closing down

On the other hand, domestic corporate players have been present in supermarket retail since the early 2000s with hundreds of stores each, especially in southern and northern Indian cities, though most have shut shop in western Indian cities. The Government of India in November 2011 allowed a majority (51%) FDI share in multi-brand retail trade enterprises and up to 100% in SBRT entities. The conditions included a minimum investment of $100 million by each player, 50% of it in back-end infrastructure, 30% procurement from micro, small and medium enterprises (MSMEs), and the government right to procure the farm produce first. This was protested by different stakeholders in the sector and the government had to withdraw the Cabinet decision on MBRT.

It is important to understand implications of FDI in food retail for small farmers as it is being permitted in the name of farmers, supply chain efficiency and employment generation. The procurement practices of supermarkets have a huge impact on farmers and present them with an important opportunity as well as a challenge. Through their coordinating institutions and mechanisms such as contracts, private standards, sourcing networks and distribution centres, they are reformulating the rules of the game for farmers. There is also supplier farmer rationalisation due to the larger supplier preference of big retailers.

The most glaring aspect of the policy of FDI in retail trade in India is that there is no protection of farmer interest in any way. Unlike the protection granted to MSMEs in terms of 30% procurement being mandatory from such enterprises, it is a case of gross neglect that simply because small farmers’ agency could not represent them like MSME associations, they could not get sourcing quota for themselves. Otherwise, how is not a quota for them justified when better-placed SMEs can get one? In fact, there are not even any incentives to encourage small farmers’ inclusion. Small-holder exclusion has been a reality in supermarket chains globally, and more so in the developing world, be it India, Kenya, China or Latin America. Further, there was no provision for formal registered contract farming being mandatory in the decision. After many years of presence of wholesale cash ‘n’ carry players and that of domestic supermarkets in India, 60-70% of their procurement is still from wholesale markets, not directly from farmers. All this indicate that FDI in MBRT as proposed might produce no benefit to small farmers.

Risk of the growers

Further, if the operations of domestic fresh food supermarkets in India and those of the global supermarkets are any indication, they will not make any difference to the producer’s share in consumer’s rupee as claimed by many proponents of liberal FDI in MBRT policy, other than lowering the cost of marketing of producers, as supermarkets have collection centres (CCs) in producing areas, in contrast to the traditional Agricultural Produce Market Committee (APMC) markets (mandis)which are in distant cities.

The Indian supermarkets procured from large and medium ‘contact’ farmers without any commitment to buy regularly as they did not want to share the risk of the growers and excluded small growers. They offered market price based procurement prices and procured only a limited proportion of the grower’s crop without any firm commitment and more on a day-to-day basis. They made no provision for any input or other services like extension. The rejected produce was left for the farmer to dispose of elsewhere as the chains procured only ‘A’ grade produce.

The poor performance of food supermarkets in India over the years and eventual shutdown of most of them in Gujarat shows that they could not create a competitive advantage in their operations where back-end (procurement) and front-end (retailing and marketing) should have reinforced each other. Thus, the involvement of supermarket chains with producers in India is low and there is no delivery of supply chain efficiency. None of them -- domestic retail players as well as whole cash ‘n’ carry players — have made any significant back-end investments so far other than setting up small collection centres in procurement regions and some distribution centres in cities/markets. They have mostly focussed on opening stores as a drive to capture the market share, rather than on supply chain improvements and operational efficiencies.

Supermarket malpractices

There have been a large number of supermarket malpractices

Due to the sheer size and buying power of foreign supermarkets, the producer prices may be depressed;

Threats of delisting if the supplier price is not low enough;

Payment and discounts from suppliers for promotions/opening of new stores;

Rebate from producers as a percentage of supermarket sales;

Suppliers not allowed to supply at prices higher than the competitor price;

Delayed payments.

Inadequate institutions and ineffective governance mechanisms to regulate and monitor the operations of global retailers to ensure fair prices for farmers

Norms are flouted openly at the store level as is indicated by a recent PIL against Bharti-Walmart.

Strengthen competition laws

There is need to limit buying power of supermarkets by strengthening the competition laws like the legal protection given under the Delayed Payments Prevention Law, 1956, to subcontracting industries in Japan in their relations with large firms, which cannot

Refuse to receive the delivery of commissioned goods

Delay payments beyond the agreed period

Return delivered goods without good reason

Force price reduction, compulsory purchase of the parent firm’s goods by subcontractor, and discounting payment after prices have been agreed to.

An independent authority like a retail commission can supervise and regulate supermarkets and can ban the buying of products below cost, make contract farming a must, improve local traditional markets for small growers, establish multi-stakeholder initiatives in the chains and provide support to small producers.

There is need to strengthen small farmers’ organisations for cost competitive production, improving quality of produce, and more active participation of small farmers in the marketing of their produce in order to capture value added in the chain.

The government should play an enabling role through legal provisions and institutional mechanisms like helping farmer co-operatives, producer companies and producer groups, to facilitate a smooth functioning of the supermarket linkages and avoid ill-effects.

The writer teaches agribusiness management at IIM, Ahmedabad.