Author Archive for Alok Mittal

Trying to make sense of “FDI in Retail” discussion

I have been inundated with debates about allowing FDI in multibrand retail over past few days. Most of these started with a political anchor with criticism of AAP, but soon enough BJP’s withdrawal in Rajasthan has confused me and many friends about what is going on. I had requested for analysis on this subject and some friends were kind enough to point me to some. As someone who is quite ignorant about the merits and demerits of the same, it has been helpful to read this material. Again, with the handicap of my ignorance, I will make some observations. Before I do that, let me list out the few documents that present the case (for and against) well:

Now, few rhetorics that I would like to distance from on this debate (one on each side):

  • The discussion perhaps is more about organized versus unorganized retail, rather than FDI or no FDI. Most of the discussion in references above revolves around merits/demerits of organized retail. The FDI discussion seems to have what I believe are unfounded fears – Walmart could start controlling India politically (East India Co!), and so on. Kishore Biyani of Future group would like FDI in retail – that is as Indian an entrepreneur as you can get. Why deprive him of legitimate sources of capital? There is also an argument that foreign companies will make money from Indians – I think that train has left the station. It is entirely valid for us to define what we want in return, but restricting capital flows because “otherwise foreigners will make money of us” is ridiculous. If at all, RBI should allow Indians to make money off foreigners by easing investments in markets abroad!
  • From several friends, I heard the other argument of “Its a global world, how can you restrict FDI!” A friend also exclaimed at “A VC like you arguing against FDI!” IMHO, both of these are bogus arguments. I believe India has done a better-than-average job of opening up its economy in a calibrated manner, as is evidenced by its relatively better tolerance of the 90s asian currency crisis, as well as 2008 financial crisis. There is no reason why we should abandon that calibrated approach for sake of a rhetoric. The discussion has to get oriented towards whats better for us collectively as a nation.
  • Again, other arguments “for” have included issues like increasing competition (do any of us believe there is lack of competition in Indian retail!?), increasing innovation, and near non-acknowledgement of predatory pricing (for all of us who have seen ecommerce develop in India, it should be clear that disproportionate access to capital encourages predatory pricing to an extent where that can become the determinant of success, rather than innovation itself.) Of course, those predatory pricing mechanisms will last only as long as the competition dissipates.

Now, some observations on my understanding so far:

  • One key issue here seems to be perceived loss of jobs. As the PRS summary points out, this is not a settled debate. I do think that policy decisions can not be driven purely by what is economically more efficient – jobs are an integral element of discussion, and jobs and entrepreneurship (even of the small scale variety) are the best known mechanism of income redistribution. Especially in the short term, large disruptions in jobs market are undesirable. Indian retail and logistics sector employs 40 million people, and a large scale threat to any significant piece of that can be detrimental to our interests. Some reports on Walmart’s effect on employment points out a net positive effect on retail employment, but “net job declines in food stores and apparel & accessory stores”, as well as “that Wal-Mart seems to displace other retail establishments”. Whether we ready for that displacement is an important part of the debate, that unfortunately has not happened in the public space.
  • An even more compelling argument for organized retail has been to support supply chain investments – that large scale supply chain investments will not happen unless access to retail is allowed, because retail is the way returns on those investments can be made (alternately, presence of organized retail makes it viable to make supply chain investments). The need for supply chain investments is well documented, so I will not go into that. However, are there other models of enabling supply chain investments, without necessarily disrupting the retail trade in potentially a short period of time? Such as the cash and carry model that has been permitted for a long time now at 100% FDI levels. Or by guiding multibrand investments towards desired segments and geos. If investments in supply chain is really what we need as a country, should we introduce incentives to make that happen?

The argument above is not to oppose FDI in retail, or organized retail per se. It is to try and understand the concerns that underlie this opposition, and to motivate a discussion to address those. While we may blame political parties for the flip flop and irrational behavior, I believe they are smart entities, and ultimately represent a section of people (who are your and my uncles and aunts.) One thing that I do have growing conviction is that the first principle questions must be asked, rather than be taken for granted, because “it seems to have worked elsewhere.” There has to be a reason why an intelligent party like BJP initially champions FDI in multibrand retail, but then gets uncomfortable (presumably) with the lack of checks and balances. Their constituents are telling them something, which is equally important for you and me to hear. If its all false perceptions and fear, then those need to be alleviated.

As a grade 1 student of this topic, would love to be educated by perspectives from others, as well as any more research you may be able to point me to. Thanks!

Dear Arvind

Congratulations. For reinstating faith of people in a democracy. For painting a vision of governance in India. For redefining the politics of the country.

I still vividly remember my first meeting with you in East Delhi during your Parivartan days, about 7 years back, and your gracious acceptance of our invitation to come to Gurgaon and share your work. I remember your being a soldier in the Anna movement, and the brickbats that flew when you decided to lead a political party. I remember your decision to contest all 70 seats in the Delhi elections within 14 months of forming AAP. And I remember my refrain and caution every step along the way. Thanks for ignoring me. I am your aam aadmi.

In leading AAP to the highest votes in Delhi elections, you have brought about tremendous change. I also want to thank you for a few other changes you have brought about, which might be less evident, but certainly are equally profound.

Thank you for instilling self-confidence in the Indian electorate. We have been jaded by great people who showed a glimmer of hope, but failed to make mass impact. In my lifetime, JP from Loksatta would rank at the top of that list, but no less other people who captured the public mood and anger. By channelizing the anger of masses into a constructive movement, you have shown a path for change agents of the future. Movements come and go, beliefs persist. Thank you for reinstating our belief in democracy.

Few months back, as I started to speak actively to my friends about supporting AAP, I found a wide variety of objections. Within me, and outside. These ranged from differences in policy underpinnings, to allegations of appeasement politics, to sheer inexperience. For past many decades, the argumentative Indian has used these nuances to fall back into inaction. Your call motivated us to find common ground, rather than to focus on tactical differences. This has been a personal revelation as I myself have navigated these conflicts in my mind. Thank you for helping find common ground in a country as diverse as India.

I have believed that the real change that AAP can bring is not just in being a successful party, but by redefining politics and behavior of other parties. Signs of that are visible today. Even if the BJP forms the government in Delhi, we will have a far better CM than we were staring at 60 days back. Congress has promised to introspect, and I am sure somewhere someday, their internal voice will speak. Thank you for not just being a game player, but being a game changer.

As someone whose day job as a venture capitalist is to provide advise, and whose evening passion is to invest as an angel investor, it would be hard for me to stray clear of providing advise, even as I myself admit that you have done a great job by ignoring it in the past! Your humility, even when we met yesterday in euphoric circumstances, is a trait your must hold on to dearly. Power has a way of instilling arrogance. I also believe that just like you have redefined politics, and you seek to redefine governance, it seems that the immediate task you have been mandated by the people is to redefine “opposition” – and what better opportunity to do it in front of a party which has taken opposition to mean strikes for past two years. Please do not hide under the conventional politics of saying that you don’t have the mandate. You have a mandate, and you must fulfill it.

Once again, congratulations, and let’s get back to work.

Yours truly

Alok Mittal

IRIS Report – Social media could swing Lok Sabha elections

IRIS has done an interesting research to quantify the potential impact of social media on forthcoming lok sabha elections. Specifically, they have identified 160 constituencies where social media commands greater than 10% share of voters, and hence could have a swing effect. Read on…

Resign Before Jan 26th

Here is a chance to do something concrete to send a signal that crime against women will not be tolerated. There is a petition to get 2 sitting MPs and 42 MLAs, accused of crime against women, to resign before 26th Jan.

Please do support if you feel this is a good first step.

Resign before Jan 26th

Anti corruption bills and Lokpal issues

Madhukar from PRS sent out these –

A link that lists some key anti-corruption Bills pending in Parliament. The list also includes those Bills that have been listed in this Winter Session of Parliament. There are also links to the text of the Bills, Standing Committee reports, and other relevant documents.

There are some important differences between some key recommendations of the RS Select Committee and the text of the Lok Pal Bill as passed by Parliament. This link provides an easy comparison of the some key differences.

Several related documents on Lok Pal (text of Bill, Standing Committee Reports, PRS Analysis, etc.) are available here.

Demystfying CAG – courtesy PRS

PRS | Parliament Track | Primers | Making Government Accountable.

A primer on how CAG works. Puts in perspective the role and methods of CAG, and how reports are released. As a layman, government audit reports going back to government (finance ministry) is a bit weird – they will obviously reject whatever doesn’t suit them. Madhukar, are there any checks and balances, or does the fact that these are public reports act as a counterbalance? Also, how are appointments to CAG made – seems like this is one office that everyone discredits all the time?

Budget Session 2012 – Summary

PRS has a summary of the budget session 2012 here. Looks like the parliament did get some business done.

Why Nations Fail

The Economist has a crisp review of the book “Why Nations Fail: The Origins of Power, Prosperity and Poverty”, by Daron Acemoglu and James Robinson.

The bottom line – Nations fail because their leaders are greedy, selfish and ignorant of history.

Sounds familiar? Perhaps worth a read Title. Youtube video here. And WSJ review here.

Indian Microfinance – Infographic from Legatum

Interesting infographic from Legatum on impact of AP ordinance on Indian microfinance industry.

Apart from effective blacklisting of millions of poor women in AP from access to private credit, the ordinance has impacted availability of credit across the country. All in name of protecting the SHG initiative, and backed by suspect claims damages that MFIs were causing.

Budget Session 2012

Madhukar has shared the bills listed for consideration and passing in the upcoming Budget session here.

Parliament is scheduled to meet for the Budget Session between March 12 and May 22, 2012. It will adjourn for a recess between March 31 and April 23 to enable Standing Committees to examine the detailed Demands for Grants. There will be a total of 35 sittings.

In addition to the President’s Address , the Economic Survey, the Railway Budget and the General Budget, as many as 39 Bills are listed for consideration and passing. The government plans to introduce 30 new Bills in this session .