Retail Trade And Balance of Payments Crisis

The members of the parties which opposed FDI (Foreign Direct Investment) in retail in the parliament were in majority to the members of the parties which supported it. Still this bill introduced in the parliament was passed. When democracy is degraded to a mere tool by the government, it is equivalent to its death in such societies. Who cares if democracy is dead or alive now ? Lets keep this dicussion aside for a short while and focus on the argument that FDI in retail will resolve the balance of payments problem.

The prime minister is warning that if FDI in retail is not allowed, then the nation will once again get into the same situation of 1991, when there was a 'Balance of Payments Crisis'. Rise in expenses and fall in the incomes causes the balance of payments crisis. Lets not go into the discussion of which expenses increased and which incomes decreased. We need foreign exchange i.e American dollars ( since that is the standard global currency ) to pay interests on foreign loans and to pay for the goods we import. Crisis in balance of payments has a negative impact on our 'credibility', which make it difficult to procure new loans. The prime minister and the ruling party and their allies opine that, if this happens then our growth rate will be adversely effected and so there is a need to take strong decisions.

We are being told that FDI in retail will create new job opportunities of 'better quality'. We dont yet know what that means. We are also being told that it would result in availability of goods at sweeter prices to the consumers and increased incomes to the farmers ( Why has the government waited for this long when FDI in retail has so many advantages ? ).

It is being said that the GDP growth rate has slowed down now. What happened when our GDP was on a bull-run? Agriculture got sucked into a huge crisis. Employment generation rate fell to 1.60 %. More than 2 lakhs farmers died (committed suicides) without any terrorist attacks from Pakistan or other countries. It is now being said that the country has landed into the 'balance of payment crisis' and it can no longer take the burden of the subsidies and there is no escape from increasing the prices of commodities. Lets look at Petroleum.

They are saying that the cost of petroleum has increased in the international market and the price difference is being borne by public sector petroleum companies, which is resulting in their huge losses, and the government is being forced to bear the burden of these subsidies. But this is not the reality. The price of crude in international market has reduced by 20 % from that of March 2012. But the price of petrol was increased by 7.45 rupees in May. When compared to other in countries,we are paying 63.70 rupees for a litre of petrol whereas in Pakistan it is 41.93 rupees and in Bangladesh it is 45.54 rupees. They are blaming the 'subsidies' for causing the 'balance of payments' crisis. When central minister Mr Jaipal Reddy opposed fixing the price of 'Gas' as per the request of Reliance Industries, he was removed from that position. The then minister of petroleum Mr Manishankar Aiyar was also dealt the same hand, when he worked hard for setting up the gas pipeline through Iran, Afghanistan, Pakistan and India.

The prime minister justified the increase in price of diesel, saying that diesel is being used in cars, factories and businesses and an increase in it's price is going to be felt only by the affluent sections of the society and hence why should the government bear the burden of this subsidy. Anyone who hears this from him, will certainly doubt his capabilities as an Economic expert. It is common knowledge that in our country the transport of goods is primarily carried through 'surface transport'. For that matter the entire public distribution system in our country relies on roadways. So an increase in price of diesel will result in significant increase in the rise of prices of goods both perishable and non-perishable. Even a beginner in Economics can understand this. Yet our beloved prime minister doesn't seem torise of prices of goods both perishable and non-perishable. Even a beginner in Economics can understand this. Yet our beloved prime minister doesn't seem to grasp it, in-spite of being an expert in the field of economics. Lets analyze what good has resulted from the 9 % growth caused by the economic reforms that he introduced.

According to a survey done by the 'Nandi' foundation, 44 % of children under the age of 5 are malnourished. While inaugurating this report, our own prime minister termed it as 'this is a shame on our nation'. BMI (Body Mass Index) is an indicator which tells whether a person has a healthy weight for his/her height. A BMI of less than 18.5 indicates that the person is severely undernourished. According to a study done by National Nutrition Monitoring Bureau, Hyderabad, in the regions of ITDA (Integrated Tribal Development Agency), 40 % of men and 49 % of women are undernourished. In the whole country these figures stand at 33 % and 36 % respectively. As per the same survey it is 38.4 % and 41.9 % in dalit and tribal population. All these figures indicate that 35 of every 100 people in our country are malnourished. At a time when the rich and affluent in the cities and towns are suffering from obesity, diabetes and heart attack due to abundance of food, the poor are dying from hunger and lack of food. As per the study of the monitoring bureau 55 % of men and 70 % of women have low blood content. All these figures also not only indicate the shortness of food but also the disparities in our society on the basis of caste, sex and region.

This is what our economic policies have achieved : Growth without employment generation, Growth without food. When the public is in this situation the country is in the danger of 'balance of payments' crisis. With this discussion in the backdrop, lets see to what extent FDI in retail will help resolve this crisis.

Our fiscal deficit was pegged at 6.97 % of the GDP during the fiscal year 2011-12, which amounts to approximately 5.22 lakh crores. During the same period the tax-breaks given to corporate businesses was 5.28 lakh crores. This means that the fiscal deficit and the subsidies given to corporates were approximately equal.

According to Popular journalist Palagummi Sainath, the total subsidies in the form of income tax breaks, given to corporate companies in the six years beginning from 2005-06 is 3,74,937 crores. The subsidies increased to 88,263 crores in 2010-11 from 34,618 crores in 2005-06. The incomes of MPs who were elected more than once has increased substantially as per the reports submitted by them to the election commission ( Please note this does not include the black money) . Following is the table showing the tax subsidies given to corporate companies from 2005-06 to 2010-11.

S. No.	Account Name	Total from 2005-06 to 2010-11 (in crores)	Increase from 2005-06 to 2010-11 (%)
1.	Corporate Income Tax	374937	155
2.	Excise Tax	749623	147
3.	Customs Duties	1000463	36
	Total	2125023	101.2%

The amount of income tax breaks being given to corporate companies by the government is 240 crores per day. 'Global Financial Integration', an american NGO estimates that approximately the same amount of currency is going out of the country. Politicians, Bureaucrats and Corporations are not different entities. Sons and daughters become businessmen and contractors, when their fathers become ministers. Or it could be the other way too. We have also witnessed many instances when businesses are run on the 'benami' accounts of the car drivers and servants of ministers.

Former election commissioner Mr J M Lyngdoh has spoken that our beloved ministers start robbing the coffers of the nation immediately after the day they get elected. Lets conclude this discussion by looking at the following example:- The expenses for the last parliamentary session were 170 crore rupees. It's only ruckus in the house that has been the outcome of such a big expense. MPs are making dozens of pleasure trips to foreign countries using public's money. Every party is pointing fingers at every other party for this wrongdoing, but everybody is involved in this. 17 MLAs from Karnataka have gone on a 'study' trip to 'South America' along with their families. As part of the itinerary, there is also a 'shopping excursion' in Dubai. MLAs from Maharashtra will be going on a month-long trip to European countries. MLAs from Congress and Janata Dal (S) in Karnataka have criticized the ruling BJP party for wasting money on these unnecessary trips. But the fact is that there were 6 Congress and 2 Janata Dal (S) MLAs in the delegation that went to South America.

The MLAs from Karnataka unanimously passed a bill allowing every MLA to make one international and two national trips during his or her tenure. This was further extended to two international trips. And going a step further they even passed resolutions that no longer would it be necessary to submit bills of expenses for these trips and also a report of their 'study' trips was not required. Also they unanimously agreed to allocate Rs 20,000 daily for expenses during these trips to 'Shopping Malls' (with family) in Singapore and 'Brothels' (with colleagues) in Thailand. When the media in Karnataka raised hue and cry over this, these elected public representatives responded (shamelessly) that this was like a 'bird-drop in a ocean' when compared to the money spent on terrorist 'Kasab'.

One can now easily understand what are the causes for the the crisis in the 'Balance of Payments' and 'Currency Devaluation'. Never in the history has a nation developed with investments from foreign countries. Nor will it in the future too. A nation which has strong economic foundations can take the support of foreign investments as a secondary aid, but the foreign investments can never become the primary factor for its development. No investing nation would want to make another nation it's 'competitor' with the help of it's own investments. Why did we hear the sound of fireworks in White House, immediately after the bill allowing FDI in Retail was passed in the parliament? The answer is in the question. If the answer is still unclear then a reading of the book 'Confessions of an Economic Hitman' by John Perkins will certainly throw some light on this.

PS Ajay Kumar
State Secretary
Andhra Pradesh Vyavasaaya Vrittidaarla Union (APVVU)

This was translated by me. The original article in Telugu is over here.