Remember the Salt Tax, anyone?

SHEKHAR SWAMY | Updated on August 13, 2011

The Salt Tax experience shows that people will pay a heavy price if essentials are controlled by foreign companies.


We cannot risk overseas entities gaining any sort of control or even influence over the nation's food supply chain that could impinge on our national security.

Recent news reports say that the Committee of Secretaries has recommended 51 per cent Foreign Direct Investment in multi-brand Retail in the country. The matter awaits Cabinet approval. The die appears to be cast.

Let us call this as it is. The government is about to open up the food supply chain of the Indian population at large to foreign retailers. This bears repeating – the food supply chain of the country is to pass on to foreign companies. National security considerations are not part of the discourse. Where is national security coming into this?

Before I provide a historical perspective, let me share some information on what is happening in Brazil right now. The country opened its doors to big foreign retailers in the 1990s. Fifteen years later, four weeks ago, a corporate deal was announced to merge Pao de Acucar, Brazil's biggest supermarket chain, with Carrefour's (French) Brazilian operation. The deal would have created a combined entity that would have 27 per cent share of the Brazilian national retail market, and 69 per cent share in the Sao Paulo state.

This means that a vast number of small retailers have been taken out in just 15 years. The deal has not closed at the time of this writing. The Economist dated July 9, 2011 said this about the deal: “The outcome … could hinge on any number of strategic, legal or political factors. Consumer welfare, however, will not be among them.” The Brazilian government is but a bystander to these corporate games affecting the people.

The simple lesson from these examples — foreign retailers will consolidate their position in our country over time.

This situation takes me back to the times when the British exercised control over the supply of salt to the Indian consumer, for 187 years. The first rules imposing Salt Tax were made by the British East India Company, as early as 1759. Since then, at different points in time, the Company first and the British government after 1857, played with the amount of salt tax levied, to suit their strategic imperatives. On several occasions, the tax on Indian salt was raised to enable the import and sale of English salt in the country. In order to harmonise regulations over the supply of salt, the British passed the India Salt Act of 1882. This created a government monopoly on the manufacture and sale of salt. Salt could be manufactured and handled only at official government salt depots, with a tax of one rupee four annas on each maund (82 pounds).

People are familiar with Gandhiji's Dandi march in 1930. The Salt Tax was not repealed by the British even after this extraordinary effort.

The tax was finally abolished only in October 1946 by the Interim Government of India. The Salt Tax was one of the most pernicious, longest lasting sources of revenue that supported the British in India. The British had their hands in every Indian's pocket, and it took forever to remedy this. The simple lesson here is that we cannot risk overseas entities gaining any sort of control or even influence over the nation's food supply chain.

The US examples

Turning to the issue of national security, there are two examples from the US, the country that pushes for opening of markets, that will help us learn about this.

In 2005, China National Offshore Oil Corporation (CNOOC), a company 70 per cent owned by the Chinese government, made an $18.5-billion bid to acquire UNOCAL, a second-tier US oil company. This was deemed as a move by China to get into US energy infrastructure. US lawmakers raised national security concerns and demanded a review. China was forced to withdraw the bid.

In 2006, the stockholders of the Peninsular and Oriental Steam Navigation Company (P&O), a British firm, agreed to a sale of that company to Dubai Ports World. As part of the sale, Dubai Ports would have assumed the leases of P&O to manage major US port facilities in New York, New Jersey, Philadelphia, Baltimore, New Orleans, and Miami. There was uproar when the deal became public. The US House Panel voted 62–2 to block the deal. They deemed it against national security.

The US has stopped oil companies and port facilities from passing into foreign hands on grounds of national security. Here in India, the authorities recommend opening our food supply chain to overseas interests.

Security concerns

We can raise this issue in a Western context. Two leading food retailers in the West are Safeway (US) and Carrefour (France). Safeway's company value is $7.3 billion (Rs 33,000 crore) and Carrefour's $21.5 billion (Rs 96,000 crore). These values are within reach of Indian business groups (Tata bought Corus for $7.6 billion; Mr Mittal acquired Arcelor for $38 billion).

If there was a bid by a foreign company for these companies that serve millions of American and French families, wouldn't US and French law makers cite national security considerations? And they will be right in protecting their national security.

Brazil teaches us that foreign retailers will in time take over a vast swathe of our country's food supply chain, with the government as spectator. The Salt Tax experience teaches us that our people will pay a heavy price if control of food essentials passes over to foreign companies. The US teaches us that we should always put national security considerations ahead of anything else.

India's food supply chain (which is what retailing represents) is a matter of national security. It is not about opening up markets. Please, can we see it for what it is?

(The author is Group CEO, R K SWAMY HANSA, and Visiting Faculty, Northwestern University, US.)

Published on August 04, 2011

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