FDI - Demystified

Bloomberg – “ India may order probe into Wal-Mart lobbying spend”

Wall Street Journal – “ On Wal-Mart, the BJP and Bribery”

These are the headlines that greet us on our television sets and our newspapers. Ever since ‘FDI’ has been mentioned there have been a lot of discussions, debates ,arguments and what not. There has always been a proposer and an opposer to this argument. The question is who stands to loose in this argument the Congress, the BJP or us the people. FDI or Foreign Direct Investment basically means investing money directly in a target country to take advantage of the present market scenarios in that country. This money can be beneficial to both the target country and the company. The country receives investment and foreign currency and also taxes from the investing company which can be used by the country for a variety of reasons. The investing company gains by getting access to that market which may provide substantial revenues to the company. FDI can be broadly classified as FDI in single brand retail and FDI in multi brand retail.

Single Brand basically means stores like Reebok, Nike, Puma etc

Multi Brand means stores like Wal-Mart, Carrefour, Metro etc.

Why is there such a hue and cry?

Well FDI in single brand retail was permitted to receive 100% funding provided that 30% of materials are sourced locally. Previously upto 51% FDI was allowed in single brand retail. However this was amended to allow 100% investment. This decision was taken after the government received severe flak for its policy paralysis. The biggest problem and the bone of contention is FDI in multi brand retail. The government argues that it will be a good source of foreign currencies and improve market practices and make the market more consumer friendly. The opposition argues that since foreign players will be allowed in the market this will badly affect local players who do not have the capacity to offer such deep discounts and will bleed them and eventually force them to shut shop. This is what the BJP and the left argue.

Ironically it is the BJP that promoted the FDI when  they were in power as they were for economic liberalization. The poster boy for BJP Narendra Modi is a leader who has been openly campaigning for foreign investment in his state.

The BJP claim that lobbyists in the US have spent close to Rs.125 crore on the FDI deal. Wal-Mart in its defence says that these were just administrative costs incurred and this was declared to the government.

What is lobbying?

Lobbying (also lobby) is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by many different types of people and organized groups, including individuals in the private sector, corporations, fellow legislators or government officials, or advocacy groups (interest groups).

Where this argument fails?

The BJP has failed to take into account that lobbying in the US is regulated by the government and also companies are required to make disclosures under Lobby Disclosure Act of 1995 and the Honest Leadership and Open Government Act of 2007.

Also what the BJP fails to remember is that there are lots of other companies — including some Indian ones – that are registered as lobbyists in the U.S. on issues like outsourcing, immigration, and pharmaceuticals. 

Rather than focus on such issues the BJP should push more strongly for the Lokpal Bill which will help  curb corruption closer to home, unless they are finally at loss if this bill is passed.