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FDI in retail may not help farmers: Stiglitz

Foreign investment will drive down prices, shift production to outside country, says Nobel laureate
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First Published: Mon, Jan 07 2013. 11 45 PM IST
Policymakers need to figure out real impediments to the development of organized retail, says Joseph Stiglitz. Photo: Aniruddha Chowdhury/Mint
Policymakers need to figure out real impediments to the development of organized retail, says Joseph Stiglitz. Photo: Aniruddha Chowdhury/Mint
Updated: Tue, Jan 08 2013. 12 00 AM IST
Bangalore: Economist Joseph Stiglitz on Monday said India’s decision to ease overseas investment rules in retail may not necessarily benefit farmers in the country.
“There is concern in this area that some MNCs (multinational companies) might use their monopsony power, their ability to access cheap goods from China, and use that monopsony power to give them a competitive advantage. That’s not a good basis for growth,” the Nobel laureate said.
Monopsony is a market similar to a monopoly except that a large buyer, and not seller, controls a large proportion of the market and drives the prices down. It is sometimes referred to as the buyer’s monopoly.
Stiglitz, a former chief economist at the World Bank, was not convinced with the view that bringing in foreign firms will make supply chains more efficient and benefit local farmers. “It’s an interesting hypothesis. I haven’t seen any evidence in other countries where that’s been true. I think there is evidence to the contrary in some countries,” said Stiglitz, who was awarded the Nobel Memorial Prize in Economic Sciences in 2001.
Stiglitz, a professor at the Columbia University, was speaking at a media interaction organized by the Azim Premji Foundation in Bangalore.
He said there would be two consequences of foreign direct investment in retail. “One, it drives down prices received by Indian suppliers to compete with foreign firms, thereby increasing inequality,” he said, adding that the second is that there will be a shifting of production from inside the country to outside.
Stiglitz said he saw no shortage of entrepreneurship in India. “Do you really think that Indian entrepreneurs are not capable of bringing in what foreign retail firms are?” he asked.
Indian policymakers need to figure out the real impediments to the development of organized retail, Stiglitz said. “It’s not shortage of capital. India has been exporting capital.”
The Nobel Prize winner, however, agreed some forms of foreign funding are important, as they provide access to technology and markets.
On the outlook for the global economy in 2013, Stiglitz said the forecast for growth in the US economy was not significant enough to make a dent in the unemployment rate. On Europe, he said that while the anxiety of a European crisis has dampened, there was a significant chance that it could flare up again.
A global slowdown would affect India in the short run, he said, but added: “The good thing about India is that it is less dependent on exports, it is less open in that sense.” India needs to focus more on its internal problems such as lack of infrastructure, inequality, education and agriculture, he said.
Stiglitz also said that the savings rate in India had come down in recent years, and increasing the savings rate needs to be an important subject of discussion. He also said the tax system in the country is not working. “The largest investments that come from Mauritius, which is just Indian money going around for reasons of tax evasion,” he said.
On the proposed direct cash transfers of subsidies to beneficiaries, Stiglitz said there were several arguments for and against it. He said there were lots of leakages in handing out benefits in kind and there is a view that individuals were better at spending money than governments.
However, Stiglitz said a large portion of the money was meant for children, and that there was evidence that often giving money to fathers meant that money does not reach the children. “There is evidence that giving money to mothers leads to better outcomes.”
The Brazilian system of conditional cash transfers to incentivize immunization and education was a more thoughtful programme, Stiglitz said.
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First Published: Mon, Jan 07 2013. 11 45 PM IST
More Topics: Joseph Stiglitz | FDI | Retail | Policy |