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The Truth vs Hype of FDI

One of the most recent problems which had shaken the UPA government is decision of allowing 51% foreign direct investment (FDI) in multi brand retail sector. The government had suffered severe criticism from all sides on this decision because of the concern about the loss of livelihoods it is likely to create. Let us analyse what actually is FDI in multi brand retail and how is it likely to impact the Indian economy. Retailing means selling of goods to the end consumer for final consumption. The Indian retail sector is divided into two groups that is organised and unorganised sector. Organised retail sector includes trading activities of licensed retailers which are registered for sales tax, income tax etc. These retailers are publicity-traded supermarkets, corporate backed hypermarkets and also privately owned large retail businesses. Some examples in India include Big Bazaar, V Mart, Shoppers Stop etc. Unorganised retailing on the other hand consists of traditional retailing formats like local kirana shops, mandi, beedi/cigarette shops, fruit and vegetable vendors and alike. The share of the organised retailing sector in Indian retail setup is extremely low which is about only 10% and rest 90% of retailing is done by the unorganised sector which mostly employs family members and lack adequate storage and logistics facilities. Though the current level of opposition which led to the holding back of the FDI in retail policy tends to generate a very negative public opinion towards this but the true picture as not as dark as it is shown. There are many flaws associated with the present retailing set up of unorganised sector which leaves the consumer with very little choice and poor quality goods. From a study it is found that about 30-40% of the farmers produces gets destroyed because of lack cold storage and warehouse facility. The various riders attached by the government to the opening of multi brand retail in India is likely to take care of such problems. According to these conditions the establishing retail store must invest at least 50% of its total investment in developing back end infrastructure and facilities like modern product sourcing management, logistics, supply-chain management, cold storage,packing,transportation,sorting and processing, refrigeration etc. which will prevent post-harvest losses and will also lead to infrastructure development and employment generation in diverse sectors as according to the commerce minister around 10 million jobs will be created in three years and farmers will be able to get better prices for their products. Also the mandatory sourcing of at least 30% of their products from small and medium scale enterprises will boost small scale industries as these chains will procure the same for their foreign outlets also. Customers will be benefitted by competitive prices and variety. It will also help to control food inflation. An example can be taken from China and Thailand where similar protests took place in the beginning but after allowing FDI in multi-brand retail these countries had been actually accelerated their economic growth. In India these stores will be allowed only in the cities having a population of million plus thus only about 53 cities will be covered in initial phase. Moreover the final decision to implement the policy will be left with the state governments only allowing them to either accept it or reject it. Hence we can say that if FDI in retail is allowed it will boost the Indian economy by allowing inflow of foreign funds and investment. Also customers will get access to quality products at competitive prices. But we must also keep in mind that may lead to large scale unemployed in unorganised retail sector. These stores may monopolize the prices. Hence opening up of the FDI retail sector should take place in a gradual phased manner so that small retailers interests are also taken care of. A possible policy may provide these small retailers with cheap credits, subsidies and technical facilities to increase their efficiency and make them competitive. Government could make it mandatory for these stores to provide certain proportion of employment to rural youth. Appropriate legal frameworks can be implemented to prevent them from resorting to predatory pricing and monopolistic tendencies. Hence we can say that if FDI in retail is allowed with certain preconditions it will help boost the

Indian economy in the long run and will project a positive image of India regarding its liberalisation policies. It will help growth of exports and employment generation. Therefore it must be allowed and at the same time interests of small retailers be also protected.

The Truth vs Hype of FDI


There are always many facts of any realistic situation in todays world, especially in a country like ours, where democracy is deemed above anything else, and where the right to freedom of speech and expression is used (and misused) over and over again. Unlike countries like U.S., where there are only two major political alliances (the Democratic and the Republicans), we have, in India, apart from the two dominating alliances, a host of other fronts, all of them persistently engaged in scuffles over every single agenda, sometimes not even paying much attention to what their stands mean, to themselves and to the country. Same has been the case with the issue of introduction of Foreign Direct Investment (F.D.I) in the Indian retail market. The government has decided to open up the Indian retail market for global players through F.D.I. in multi-brand retail with a 51% threshold (i.e. they can have only 51% equity in the investment) and 100% ceiling in single-brand retail. There are several versions of the possible outcome of this scenario floating in the different spheres of the country. But the different interpretations ought to be backed with rational reasons. Broadly, there are two different views with regard to the decision of the Indian government to allow F.D.I. in Indian retail market, one supporting it and the other opposed to it. The first argument is put forward by the government itself, quite obviously supporting its resolution. The government claims that 10 million jobs will be created in the retail sector in the next 3 years (though without floating any judicious explanation). It mandates a minimum investment of 100 million U.S. dollars (approximately 500 crores rupees) for the foreign companies, with at least half the capital to be invested in back-end infrastructures, including cold chains, refrigerations, transportations, packing, sorting and storing. Now, this is no secret that India, amongst the other developed and developing nations of the world, falls way behind when it comes to infrastructures( as has been recently pointed out by Ernst & Young that most of the multi-national companies backing out of India cite lack of proper infrastructures as their key concern). Hence, under these circumstances, this step can be deemed most welcoming. Another very influential agenda pointed out by the government is the nuisance of middlemanship. FDI in retail will ensure procurement of raw materials, especially of fruits and vegetables, directly from the farmers, thus filtering out the roles of middlemen. The price that a farmer gets for a kilo of onions today is about half the price at which retailers and vendors sell the same stuff to the consumers. Another proposal buoying this idea is that a minimum of 30% of the value of manufactured items procured should be sourced from small and medium Indian enterprises. The government backs its decision with a host of other reasons, e.g., the presence of foreign retail majors will ensure supply chain efficiency. It also alludes to examples of some other nations (China, Thailand etc.), though they fail to explain why the same system will be beneficial to our country as well. The second version includes the views of the opposition and those who consider this decision to be inconsistent with the nations development. There are over 1.2 crores shops in India, employing over 4 crores people, 95% of which are small shops run by self-employed people. The opposition claims that the move will lead to large-scale job losses. Since there is no compulsion to procure all the raw and manufactured materials from Indian sources only, it may lead to domestic agro-industries getting haywire. The move can also lead to market prices being controlled by the foreign giants, further causing a slump of traditional Indian markets and monopoly in the markets. The fact being pointed out by the opposition that any comparison being made between India and someone like China is bogus, is crushingly genuine. Both these versions of possible upshots are anything but restrained. And going by the history of our nations reaction to issues pertaining to the common -mans life, a lot of hype is being created

over the situation and the issue, by and large, is being blown out of proportions. These extremist views, being largely politically motivated, are far from being the truth. The truth, in fact, lies somewhere in the middle. Firstly, a sheer glance at the whole matter at hand gives anyone the fair idea that this move is going to do more good than harm. Since the government is not directing anything against the Indian domestic enterprises, they can co-exist with the big guns of the world, and a healthy competition is never a bad idea in todays world. They should, in fact, look forward to work in liaison with these companies. If the idea to introduce F.D.I means that the farmers are going to get their worthy rewards and the masses are going to have access to better qualities of commodities at better prices, then this step should be welcomed with open arms, even if this means that a handful of people will be driven out of jobs. Because while choosing between two evils, one should always go for the lesser evil. However, if the government is backing its decision purely on the basis of examples and references of nations like China and U.S., then it should also keep in mind the grave differences between the highly-disciplined systems of theirs and the ever-worsening chaotic conditions of our system. The bottom line is that any step of any nature taken by the government is always going to benefit a particular section of the society and at the same time, is going to be harmful for another section. But the million-dollar question is whether this decision has really been taken with a chaste heart, or is just an another example of greedy politics.