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IMPLICATION ON AGRICULTURE AND ENVIRONMENT

By -Gulshan SharmaRoll no- 20168

Division of Environmental Sciences

                                                                                                                                                                        

HomeNewsOpinionSportBusinessArtsLife & StyleS & TEducationHealthJobsClassifiedsToday's PaperTopicsINTERNATIONALNATIONALSTATESTHE INDIA CABLESTHE PAKISTAN CABLES  CITIES:             NEWS » NATIONALNEW DELHI, February 21, 2012

Traders to protest against FDI in retailSHARE  ·   COMMENT   ·   PRINT   ·   T+  Traders from different States will take part in a protest march to Parliament on February 22 against the Central government's decision to allow foreign direct investment in multi-brand retail.

FDI retail in India: Pranab Mukherjee fights opposition within Congress, Parliament paralysed againstPTI Nov 30, 2011, 05.13pm ISTTags:•UPA government|•Pranab Mukherjee|•FDI in retail• NEW DELHI: With Government being cornered over various issues, Finance Minister Pranab Mukherjee today briefed party MPs about the rationale behind allowing FDI in retailas also steps being taken to address inflation and blackmoney so that they could counter to opposition attack.Mukherjee, who was deputed to apprise the party MPs about the government's actions and positions on the controversial issues, briefed them for about one hour amidst increasing attack by the Opposition.

Govt launches campaign on FDI in retail 

FDI in retail implication on Agricultureand Environment

Contents

• Introduction• Current situation of FDI in India• Need of FDI• Current scenario of FDI in India• Impact of FDI on farmer• Impact of FDI on consumer• Impact of FDI on SME• Impact of FDI on environment

Introduction

• Dictionary of Economics (Graham Bannock et.al) -----is investment

in a foreign country through the acquisition of a local company or

the establishment there of an operation on a new (Greenfield) site.

• To put in simple words, FDI refers to capital inflows from abroad

that is invested in or to enhance the production capacity of the

economy.

• Foreign Investment in India is governed by the FDI policy

announced by the Government of India and the provision of the

Foreign Exchange Management Act (FEMA) 1999.

Continued….

• FDI provides a win – win situation to the host and the home

countries. Both countries are directly interested in inviting

FDI, because

• ‘Home’ countries want to take the advantage of the vast

markets opened by industrial growth.

• ‘Host’ countries want to acquire technological and managerial

skills and supplement domestic savings and foreign exchange.

Entry option for foreign player prior to FDI policy

Although prior to Jan 24, 2006, FDI was not authorised in

retailing, most general players had been operating in the

country.  Some of entrance routes  used by them are—

1) Franchise agreement – Ex Pizza Hut, players such as

Lacoste, Mango, Nike, Spencer

2) Cash and carry whole sale trading-100% FDI is allowed in

wholesale trading ex Metro AG of Germany

3) Strategic Licensing Agreements- Foreign brands give

exclusive licenses and distribution rights to Indian companies

ex Mango, the Spanish apparel brand.

4) Manufacturing and Wholly Owned Subsidiaries -The

foreign brands such as Nike, Reebok, Adidas, etc. that have

wholly-owned subsidiaries in manufacturing are treated as

Indian companies and are, therefore, allowed to do retail

Current situation of FDI in India

• 100% FDI in single-brand reality now

• The government on 12 January 2012 notified the rules allowing

100% foreign direct investment (FDI) in single-brand retail

• While At present, 51% FDI is permitted in this segment of

retailing which was opened to foreign players almost six years ago

• But government is thinking to open the FDI in retail in India

which implies that foreign investment in retailing is possible up to

51% in multiple brands.

FDI inflows-country wise(2000-2008)

Mauritius; 40.5

Singapore; 7.1UK; 6.6USA; 2.8Cyprus; 1.6

Others; 41.4

A Study Of FDI And Indian Economy (by Sapna hooda 2010)

FDI flow in India( billion $)

0

5

10

15

20

25

30

35

40

0.13 0.58 2.2 46.1

9

22.8

34.4 35.237.2

A Study Of FDI And Indian Economy (by Sapna hooda 2010)

FDI inflows by region(billion$)2000-2009

9.6 9.2

2.8 2.71.5 1.1

0

2

4

6

8

10

12

A Study Of FDI And Indian Economy (by Sapna hooda 2010

A Study Of FDI And Indian Economy (by Sapna hooda 2010

FDI in Agriculture & Animal Husbandry

100% FDI is allowed in,

a) Floriculture, Horticulture, and Cultivation of Vegetables

&Mushrooms under controlled conditions

b) Development and production of Seeds and planting material

c) Animal Husbandry (including of breeding of dogs),

Pisciculture, Aquaculture under controlled conditions

d) Services related to agro and allied sectors

e) Tea plantations

FDI prohibited areas

Multi brand Retail trading

Atomic energy

Lottery business

Gambling and betting

Business of chit funds

Trading in transferable development rights

Railways

Sector wise FDI inflow in INDIA

Why India is an attractive destination?

2nd Largest Emerging Market

Skilled & Competitive Labour force

Highest Rate of Return on Investment

Second Largest Software developer

Growth over past few years averaging 8%

Why FDI......

• Lack of investment in logistics of retail chain creating in efficiencies in the

food supply chain

• India is 2nd largest producer of fruits and vegetable(about 200 MT). But in

India 5386 cold storage only having total capacity of 23.6 MT, 80% of that

use for potatoes.

• Lack of adequate storage causes deteoration in quality and quantity of fruits

and vegetable.

• Post harvest loss up to of Rs1 trillion per annum.

• 35-40% loss of fruits and vegetable and 10% food grain in India are wasted.

• Foreign players have experience of management practices and

technologies which will ensure supply chain efficiency

Sectors in Indian Retailing

Organized and Unorganized

Organised retailing refers to trading activities undertaken by

licensed retailers. ex APMC

Unorganised retailing, on the other hand, refers to the traditional

formats of low-cost retailing, example local kirana shops, paan/beedi

shops.

Organized vs. unorganized

A Study Of FDI And Indian Economy (by Sapna hooda 2010)

Aspects Organized Sector Unorganized Sector

Percentage of Total Retail

4.6% 95.4%

Provides Employment to

5 lakh 3.95 crore

Unorganised sector

Threats of unorganized sector

Predatory Pricing

Monopoly in the retail market

Uncompetitive Un-Organized Sector

Unemployment/Underemployment

Low rate of Development in Un-organized Sector

Poor Infrastructure

Organized Market

FDI’s entry benefits

FDI in multi-brand retail will

give a boost to the organised

retail sector, which positively

impacts several Stakeholders,

including producers, workers,

employees, consumers, the

government and hence the

overall economy.

Continued…….

• In a true potential scenario, opening up of FDI can increase

organized retail market size to $260 billion by 2020.

• Aggregate increase in income of $35-45 billion per year for all

producers together

• Inflow of FDI will impact food inflation as it contribute to saving

of food which perishes on account of inadequate infrastructure.

• About 3-4 million new jobs

www.rediff.com.business

Continued…

• Organised retail has the potential to drive efficiencies in this chain by:

• (a) Increasing price realisation for farmers by 10-30% through directly

picking farm produce from their village.

• (b) Reducing handling and wastage by 25-50 %

• (c) Elimination of middle man role

• (d) Improving farmers' output and yield through better extension services and

user friendly processes.

(www.rediff.com.business)

Current scenario of farmer

• Indian farmer get only 1/3 of total price paid by

final consumer against 2/3 by retail.

• World bank study 2007 demonstrate that farmer

receive only 12 to 15% of total cost paid by

consumer to retailer.

Continued….

• Farmers in India today receive a small share of the end

consumer price.

• As an example, for tomatoes, farmers in India earn only 30

per cent of consumer price, while in more developed markets

this is in the 50-70 % range.

• Loss of post harvest product as we know in India 30% post

harvest product are loss during transportation and selling.

Effect of FDI on farmer

• Farmers can get 10-12% better prices than

mandi rates depending on the quality of the

produce

• Save another 5-6% on transport costs if they

had to take their produce to the mandi.

• So a farmer can save minimum of Rs. 1,000

a day by supplying to organised retail.

(Economic survey 2011-2012)

Continued…

• Farmer get crop insurance from multinational companies.

• As farmer will get fair price for their product they will not

leave agriculture ultimately food production will increase and

lacking of farmers suicide incidence.

Continued…….case study

•130 farmers from seven villages at Malerkotla

tehsil in Punjab have been supplying their produce

to Bharti Wal-Mart for more than two years now.

• About 30 tonne of vegetables are picked up

everyday. Earlier, farmers were at the mercy of

middlemen at the Mandi.

•"Whatever vegetables they take to Mandi, they

get about Rs 10 bonus on them.

•Farmers get tips also about storage during

weather change.

(THE HINDU)

Effect on consumersQuality rich product

Greater transparency

Easier monitoring of adulteration

Nutrient rich product

Product on fair price

Absence of monopoly

Varieties of processed product like jam, jelly, sourkrout

Continued...•For a low income family, organised

retail has the ability to lower the cost

of the monthly consumption basket as

much as 5-10.

•Shelf life of product will be high.

Effect of FDI on SME sector

• According to FDI policy 30% of sourcing is to be done from

small enterprises.

• 30% raw material will be taken from small industry such as

cottage, gems, textiles etc.

• So SME will sell market will also hike

• FDI can help SMEs supply in: large volumes, increase quality

and become a vendor to international players

Continued…

• Increase the quality of products and become cost competitive

in global arena.

• Effect on traditional trade-Traditional trade will not decline.

Even in the last three years when modern retail has grown 24

per cent, unorganised retail has continued to grow at rate of

10-12 per cent.

Effect on Environment

Positive effect on environment

• With the inflow of FDI, both new technologies and modern management

methods are introduced to host country.

• Because most new technologies are more environment-friendly than those

technologies in use in developing countries, foreign owned enterprises

using new technologies often have better environmental performance than

domestic enterprises and produce a demonstration effect.

• Therefore, FDI may decrease pollution emission intensity; pollution

emissions will have a decreasing trend as a consequence. The kind of

effect is usually called technology effect.

Continued….

• FDI could have an impact on environment by changing the

industrial structure, namely structural effect.

• FDI may increase resident’s income. Richer people will have

more demand on environmental quality. They will not only

take some ways to protect environment themselves but also

exert pressure on government to practice more strictly

environment regulation. Therefore, income effect

Continued…

Substitution effect. Not all products of FDI enterprises are exported.

A great proportion of total output is used to meet domestic demand.

• Considering the fact that those enterprises with FDI have lower

emission coefficients, we could notice an important point that

domestic demand met by FDI enterprises instead of domestic

enterprises will be helpful to reduce the total volume of pollution

emission.

• The decreasing volume is defined as substitution effect

Negative impact on environment

• As global economic activity expands environmental damages

will rise.

• For attracting more share of FDI host country will relax their

environmental laws and regulation.

• There could be negative impact on environment if host

country will not take stringent environment laws against home

country.

Continued…

• Transfer effect. If a product is produced by a foreign-capital

enterprise in host country and is exported, pollution emission from its

production process occurs in host country but the use of this product

occurs in other country.

• It means that the country that consumes the product does not pay any

domestically environmental cost, in other words, consumption

country transfers pollution to host country of FDI. So this will

increase of pollution emission occurring in host country caused by the

above behaviour of FDI enterprises.

Continued………

• Pollution haven theory says that foreign investors from

industrial countries are attracted to weak Environmental

regulations  in developing countries. This principle says that a

company would want to locate in a country with the

lowest environmental standards

• Countries set their environmental standards below socially

efficient level in order to attract investment or to promote its

exports.

Case study

• Srilanka --(FDI) is assumed to benefit Sri Lanka, not only by

supplementing domestic investment, but also in terms of employment

creation, transfer of technology, increased domestic competition and

other positive externalities.

• As a result, during the last decade FDI inflows in Sri Lanka has

increased considerably by 8.5 in 1990 to 15.0 in 2000 as a percentage

of GDP while Indian experience was 0.5 to 4.1 in the same period

• (The Impact of Foreign Direct Investment for Economic Growth: A

Case Study in Sri Lanka)

Continued…

• China– due to FDI in china there is a fast economical growth,

increase employment and income per head increase

considerably

(Foreign Direct Investment in China: Policy, Trend and

Impact)

Constraints for FDI flow

Poor infrastructure

Regional differences

Political instability

Bureaucratic and corruption

Growing importance of green concept

Many sectors are still out of reach

Conclusion….

• According to me 51% share of FDI in retail is a good move by government

because—

• It reduces middle man role.

• Beneficial for farmers(60% depend on agriculture

• Beneficial for consumer

• 12-18% reducing( middle man and traders)

• Job opportunity( 4 million approx)

• On the other hand it have dual role on environment depending upon govt.

environmental strategy

Thank you