Understanding The Policy That Is FDI In Retail

Posted on July 10, 2012 in Specials

By Tarun Raina:

The retail FDI policy has been burning smoke every now and then with the hungry government trying hard to buy it off the shelves before it expires. What are the various issues curbing it? Let’s find out.

According to the West Bengal chief minister Mamta Banarjee , 5 crore of the 10 crore people living in her state are directly or indirectly related to retail and will lose their livelihood if the retail FDI is allowed. Even after being explained about the pros of the policy and the welfare of the farmers, she insisted and said she does things which she decides. As being UPA’s key partner, Trinamool and likewise other parties opposed the move.

Completing the dance of democracy, the opposition played its part with a variety of hues suggesting that the move will lead to large scale job losses. Small retailers of which 95% in India are self employed, will eventually be displaced due to the supermarkets. Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources due to the easy and cheaper product. This has been the experience of most countries which have allowed FDI in retail. Also the argument that only foreign players can create the supply chain for farm produce is said to be bogus. International retail players have no role in building roads or generating power. They are only required to create storage facilities and cold chains and also added that, this could be done by governments in India.
Now perceiving the issue from the prospective of the common man or the “aam aadmi”, the policy has many things in it for him.

With companies like Wal-Mart or Tesco, the largest private employers of the world at our doorsteps, there is more chance of employment rather than job losses. According to stats, at least 10 million jobs will be created in the next three years in the retail sector.

FDI in retail will help farmers secure profitable prices by eliminating exploitative middlemen and hence making goods cheaper for the people also. Farmers will get better seeds and timely payments will ensure a healthy exchange between the two.

Foreign retail majors will ensure supply chain efficiencies, as they will include cold chains, refrigeration, transportation, packing, sorting and processing. This will lead to lower prices of products, benefiting consumers at large, minimum wastage of food resources due to present poor infrastructure, lesser inflation rate due to the efficiency in the supply chain and hence a step towards the speedy growth of the country.
For the significant loop hole in the policy, sourcing of a minimum of 30% from Indian micro and small industry will be made mandatory. This will provide the scales to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology up gradation and income generation.

The question of the local shopkeepers or the kirana stores losing their jobs is inadequate as even after a decade after the domestic majors were allowed to invest in retail, these stores exist. Stores like Wal-Mart or Tesco will need a lot of space and hence will only crop up in big malls or outskirts of cities. A buyer cannot run to these stores for every daily use item he requires, hence they can’t intrude into the territory of local kiranas.

After seeking the few major points from above involving the boon as well as the bane of the situation, it is most likely that this policy be amended if it does more good than harm for the economy. With 50% of the Indian workforce reaping profits and the common man dodging the weight of inflation, the policy promises a sound future and better living for people. But making its way out of the jungle is important as the policy will hit them where it hurts, their wallets and their vote banks.