Obama’s retail FDI self-goal
It is Hillary Clinton, US secretary of state now and Walmart director till 1992, who has been lobbying for foreign direct investment (FDI) in retail in India, the visa Walmart needs to enter India. Now it is the United States President Barack Obama himself. In the guise of urging a fresh wave of economic reforms, Obama has clearly asked India to invite Walmart. India is shocked at his ugly intrusion. The opposition is angry. The prime minister, as usual, is silent. The otherwise talkative India Inc too is quiet. “Obama is not properly briefed”, laments Veerappa Moily. Anand Sharma asserts, hesitatingly, India’s right to make policies. Some in the media — bit shamelessly — welcome Obama’s uncouth intrusion editorially and with editorialised headlines like ‘Policy paralysis in New Delhi reaches White House’. Actually, is not the otherway round? Is it not the White House that seeks to transfer its worries to New Delhi?
What drives the pressure on New Delhi for FDI in retail? Walmart lobbyists, Yes. However, the drive is deeper. Obama is desperate to lift the falling sentiments of US economy. The fundamentals of US and most European Union economies are weak with poor household, bank, government and national finances, all of them plagued by deficits and debts. That more and more paper money is being created and pumped in to keep households, banks and businesses solvent is now public fact. Some EU economies are actually bankrupt. On fundamentals, the US too would be, but for the US Dollar having unduly populated the world in its best times and co-opted the world to sink or sail with the US now. Obama and his advisers see no easy answer to such malaise built over three decades. The much touted US economic recovery since 2010, bargained at $6 trillion extra debt to US government since 2008, is turning into a mirage. From signs of fatigue in 2011 it is fear of downturn in 2012. In September 2011, the International Monetary Fund (IMF) downgraded the US economic growth from 2.5 per cent to 1.5 per cent and in 2012 from 2.8 per cent to 1.8 per cent. Recently, the Central Budget Office (CBO) US has predicted gloom for the US economy, with US deficit till 2019 projected at $9.5 trillion and the federal debt, $10 trillion in 2008 and $15.5 trillion in 2011, predicted to be $16.7 trillion by 2012. That is not all. US consumer debt is rising. Yet its consumption is falling from over 71 per cent in 2010 to less than 71 per cent in 2011. Household savings is down from over 8 per cent in May 2009 to 3.7 per cent in April 2012. The US needs more savings and more consumption together — like simultaneous summer and winter!
Understandably Obama looks for easy alternatives like fabricating sentiments to lift the markets. US economic thinkers, and their disciples world over, for instance, believe that if the emerging economies do well, US market sentiments and business confidence will rise. However, if China does well by more exports to US, that would actually do down the US. Again, if US consumers consume more, market sentiments and business confidence will rise, but that will dynamite household and the bank balance sheets even more. Yet, with the US now accustomed to living on the ventilator of market sentiments, not economic fundamentals, Obama believes that India opening its retail will lift market sentiments and business confidence in the US. He talks of additional jobs in US with Walmart in India. He is keen to show to American voters the FDI-in-retail trophy from India and promise more jobs to Americans. Not a single job may get added, but the sentiments will lift Dow Jones stock index, as Obama goes for polls. It is the presidential candidate Obama, more than President Obama, acting now.
Obama’s intrusion is not without background. Even before Obama visited India in end 2010, efforts were made to welcome him with an invite to Walmart. US government, US Inc and US media had been working ahead of his visit on the Indian government, India Inc and Indian media for an invite to Walmart. Before Obama, Mike Duke, Walmart CEO came to India, met all concerned and left, optimistic about a Walmart entry. India Inc and the Indian media began pushing Duke’s wish, shedding tears for the Indian farmer, for his plight at the hands of the Indian traders. However, time was too short for the final act. By July 2011, the lobbyists had perfected the records for the final act. On November 24, 2011, the prime minister announced a policy to allow 51 per cent FDI in Indian retail trade. The delight of US-Walmart was short-lived. The traders declared a strike. A united Opposition supported them. ‘No roll-back’ asserted the government. The fatal blow came from within the UPA. Mamata Banerjee got the PM’s decision put on hold, till consensus emerged among stakeholders. An accomplished success thus ended in utter humiliation. See how the powerful and multifaceted lobbies strike back.
First the rupee mysteriously nosedives from ‘48-49 to a dollar in end February to between ‘55-57 during May to July. The rupee’s fundamentals do not deserve that kind of fall, says the Reserve Bank of India. The three-month premia for future delivery of dollars rises suddenly from 6-7 per cent in December 2011 to almost 11 per cent in Feb-Mar 2012. This perhaps causes a huge rise in the purchase of dollar in the spot market, and forces the dollar to rise and the rupee to fall. This actually needs inquiry. The rupee’s fall puts pressure on the soft points of Indian economy — falling forex reserves and rising oil prices. Using the situation, lobbyists promptly start cry for economic reforms.
In India reform means only opening the economy to FDI, particularly in retail now. Media and business lobbyists clamour for Walmart to save the Indian farmers! There is all round fear that, citing the stress, the government would go for an all-out opening of the economy, not just retail. Obama’s intervention, however, has changed all that. He has made it impossible for the UPA government to invite Walmart now. If it opens the retail sector to FDI, it would be acquiescing to Obama. This needs a look at Indo-US history. For decades, the US was a suspect in the Indian mind. This long-held suspicion relates back to the Cold War days when the US promoted Pakistan and tormented India. Not much has changed despite the US being tortured by Pakistan now. Unaware of this sensitive history, Obama has blundered. His intrusion has raised questions over the motives of the US.
QED: Obama’s self-goal has torpedoed all possibilities of an Indian visa to Walmart in the near future. S Gurumurthy is a well-known commentator on political and economic issues.