The Big Battle On FDI In Retail Explained: Analysis

Posted on September 19, 2012 in Biz and Eco

By Anvita Shukla:

On 14th September 2012 Central Government of India allowed upto 51% FDI in Indian Retail market, subject to approvals by Indian States. While this move is being welcomed by many, several political parties are opposing it vehemently. Here is a look into what this relaxation in FDI promises, and threats that it has for Indian economy.

FDI in retail market has thrown some serious concerns, and sparked agitations nationwide. Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its GDP , and India happens to be the fastest growing retail market of the world. This makes our country an investment paradise for huge retail chain owners.

The government, constantly being accused of a policy paralysis, has tried to lure the public into promises of growth the FDI in retail would make. These promises include, a speedy economic growth, recovery of GDPI which has been plummeting from a couple of quarters, improvement in falling value of rupee, and reversing an economic slowdown. Middle class of India believes FDI in retail would be a bold step in economic reforms. This strata of society largely believes that advent of store chains like Walmart in the retail market would change the way a common Indian shops. In the coming times an average Indian would experience lower prices of commodities, organized shopping with world class facilities, millions of jobs for youngsters in the country, and inflation would be curbed.

Experts claim that lack of retail experience and capability has been one of the primary reasons for subdued growth in this industry. FDI in retail will make way for inflow of knowledge from international experts which can boost the overall growth of the industry. Experts also say that this step would improve the management of supply chain, improve the productivity of food and agriculture in our country, and increase the investment in retail sector. It is also being expected that cold storage infrastructure will become economically viable only when there is strong and contractually binding demand from organized retail.

But grass root activists and several political leaders have very different opinion about FDI. What most experts and middle class Indian seem to forget or not realize is that retail industry is not a mere form of business in India. It is a mean of livelihood for several people who have not been able to secure a proper job. When store chains like Walmart pose a threat to our domestic retail chains like Pantaloons, Reliance Fresh etc., it might sweep off the local retailers from the entire market. FDI promises to create around 2 million jobs in the country whereas India’s retail and logistics industry already employs about 40 million Indians, many of whom stand a threat of losing their jobs.

Another factor is the monopoly of big brands on the Indian market. FDI would have a huge impact on the sale and profit margin of Indian farmers. Government has laid down the guideline that the single brand retailer must source 30 percent of its goods from India. Now reading the trends of market, chain-store owners have the tendency of overpowering the market and exercise monopoly. They would purchase 30% of their goods from the local farmer at whichever price they please as against today, where several traders have to compete with each other in order to buy the farmer’s produce. This will bring about greater dependence of farmers on the MNCs and they would be vulnerable to exploitation. Now we are already facing challenge of bridging the gap between Bhaarat and India, but FDI in retail might just widen it further. Talking about improvement in supply chain management, complains have been registered all across the world against the retail store chain owners about not paying their suppliers timely. Forget about any other country, retail chains like Walmart are facing a huge opposition from their own country. The following link talks about the high cost of low price which America has to pay for the flourishing business of Walmart.

Bihar CM Nitish Kumar expressed his concerns on FDI in retail market. He said “here is a serious apprehension that the flow of organized foreign capital with its associated baggage of infrastructure, bulging financial power, professional managerial staffs etc, would sound the death knell for the Indian retailing sector. This will hike the rate of both unemployment and underemployment.” In the current scenario only 20% of the retail market is organized, the remaining 80% unorganized and in an extremely nascent stage of development. The entry of large global retailers would slowly but surely marginalize domestic retailers and in the long run kill local shops and millions of jobs.

The government has already passed the verdict and appears in no mood of rollback, Mamata Banerjee has withdrawn support, and other political parties have called in for a bharat bandh, we need to wait and watch the politicians decide the fate of retail industry in India.

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Rajesh V

Retail might not be rocket science but it is a detailed business. The entire debate about FDI is largely based on emotions and half truths. While the livelihoods of the stand alone stores is used as an excuse, no one understands how they operate and why they can and most definitely will survive. They have unique cost advantages which is their competitive advantage. As an Indian Retail Expert, I would invite you to read these details posts regarding this topic – http://v-rajesh.blogspot.in/search/label/Retail%20FDI

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