FDI In Retail Sector: Good or Bad?

Posted on October 8, 2011 in Business and Economy

By Amit Borse:

All politicians are talking about FDI (Foreign Direct Investment) in Retail Sector. It should not be 51% FDI in multi-brand Retail, but we know that we already opened our market for 51% FDI in single-brand retail and 100% in wholesale cash and carry. It affected our market. I don’t think so because we created 35 million jobs for agricultural and non-agricultural sector. Is it good or not? Let’s find out.

As we know we are the 4th largest economy in the world. The way we are expanding and impacting the world after liberalization, we need to then improve our lifestyles comparing to other countries. We need to improve infrastructure and many more things. As a part of this, we allowed 51% FDI in single-brand retail and 100% wholesale cash and carry.

Change brings good things and bad things. This change brings a good thing for our country because we created employment opportunities and competitive environment. These two changes we see after FDI in single-brand retail. The disadvantage to our country is that we disrupted the old concept of supply chain management. In this, retailers directly purchased the produce from farmers. Now middle line is disappeared, which is a very good thing from farmers’ perspective.

Now the Committee of Secretaries, CoS, had given their nod to 51% FDI in multi-brand retail. It means Rs. 450 crores in multi-brand retail, but with stringent conditions like mandatory investment of at least 50% in the back-end infrastructure, minimum sales of 30% to come from small traders, and 30% mandatory sourcing from small and medium enterprises.

Now first go with 50% investment in back-end infrastructure, it will not improve our country’s infrastructure but also generate the employment to the country. So, it is a valid point.

Second, minimum sales of 30% to come from small traders, it will create a very good opportunity for small traders and they will competitive enough.

Third, 30% mandatory sourcing from small and medium enterprises, it will give an opportunity to small and medium enterprises to be competitive and improve their quality because whoever will come in India they are very quality conscious.

It means FDI in Retail Sector is a very good sign for consumers because they will get lots of varieties in a reasonable price, employment generation for 2nd largest populated country, and competition increase.

We see a positive side of it, now let’s talk about negative side. Are our domestic players ready for competition with foreign players? If we want to compete with foreign players then we need to be competitive enough. Kirana shops have to make efforts to retain their customers because they need to give discounts as in the malls, very good ambience to the customers, and free home delivery.

One thing which I want to address here is about the credit card. I think credit card system gives a credit limit of 50 days after purchasing of a product. Credit card defaulters are more usual in our country because people purchase the product but at end of the month they don’t have money to pay their bills. It impacts to the country after all.

It will help tame inflation in the near future. Is it possible? I don’t think so, because the way inflation is rising and we are not able to tame it any manner, what is the guarantee that FDI in multi-brand retail will help tame inflation? After allowing FDI in single-brand retail, we did not see any change in the inflation rate. I think it increased rather than decreased.

We see both sides of a coin, negative and positive, but then we need to allow FDI in multi-brand retail because if we want to grow, become competitive enough, and make reasonable employment opportunities for the increasing population, then we need to take this step.