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Instead of FDI, India should focus on internal issues and development: Stiglitz

 

Wednesday February 20, 2013

India, FDI, Production, Market  
 

Speaking at a media interaction in Bangalore, organized by the Azim Premji Foundation, Joseph Stiglitz, a professor at the Columbia University, said that the consequences of foreign direct investment in retail would be that it drives down prices received by Indian suppliers to compete with foreign firms, thereby increasing inequality.

 
HNF Correspondent  
   

While the Indian government is pushing its idea of Foreign Direct Investment (FDI) in Indian retail sector, Nobel laureate Economist Joseph Stiglitz has boldly opined that the idea of the government would grossly go wrong and the government’s decision to allow foreign investment in retail may not be of any benefit to the farmers in the country.

A former chief economist at the World Bank, Stiglitz was opposed to the view that bringing in foreign firms would make supply chains more efficient and benefit local producers and farmers. Terming it as a hypothesis only, Stiglitz said, “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.”

 

Citing that foreign investment would bring in more corruption, Stiglitz said that “Don't focus on FDI in the belief that it will solve all problems.” He also warned the Indian government saying, “Walmart certainly brings greater capacity in bribery, it was their source of success in Mexico. You don't need to bring that in, you already have enough of that.”

Apprehending that the investment inflow would shift the production bases to outside countries, the Nobel Laureate said, “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,” quoted Livemint, a financial newspaper.

To define the word ‘Monopsony’, it is a market similar to that of a monopoly except that a large buyer, and not the seller, controls a large proportion of the market and drives the prices down. It is sometimes referred to as the buyer’s monopoly.

Speaking at a media interaction in Bangalore, organized by the Azim Premji Foundation, Stiglitz, a professor at the Columbia University, said that the consequences of foreign direct investment in retail would be that it drives down prices received by Indian suppliers to compete with foreign firms, thereby increasing inequality. On the other hand, refuting to the claim of shortage of entrepreneurship in India, Stiglitz rather questioned, “Do you really think that Indian entrepreneurs are not capable of bringing in what foreign retail firms are?”

About the propaganda that India has shortage of capital for its own development, Stiglitz said. “It’s not shortage of capital. India has been exporting capital.”

While Stiglitz was of the opinion that US is expected to experience slowdown this year, he opined that the global slowdown may, only, have a short term impact on India because India is less dependent on exports. Stiglitz suggested that India should, rather, focus on its internal issues of inequality, lack of infrastructure, issues of education, agriculture, environment, water etc.

 
 

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