IMPACT OF FDI ON PRODUCERS AND INTERMEDIARIES The trading sector is highly fragmented, with a large number of intermediaries.

So also, wholesale trade in India is marked by the presence of thousands of small commission agents, stockists and distributors who operate at a strictly local level. Apart from these, in many cases small producers such as artisans and farmers sell their goods directly to end consumers (often one family member is a producer and another sells the products). The existence of thousands of such individual producercum-sellers is an example of vertical integration as it is found in the Indian retail sector. There is no barrier to entry, given the structure and scale of these operations. Customer relationship management (to use the marketing jargon) is handled in India by numerous small vendors locating themselves close to their customers either by opening a tiny outlet in a residential area or by hawking goods at the consumers doorstep. In this process, a personal relationship de velops, often extending beyond immediate business interests. Opponents of the FDI feel that liberalization would jeopardize the unorganized retail sector and would adversely affect the small retailers, farmers and consumers and give rise to monopolies of large corporate houses which can adversely affect the pricing and availability of goods. They also contend that the retail sector in India is one of the major employment providers and permitting FDI in this sector can displace the unorganized retailers leading to loss of livelihood. At present farmers get only one-third of the total price paid by the consumers. It is necessary to understand who the present intermediaries are. They are the bullock cart men, transporters, agents and small traders. On the other hand, in the case of global players, the intermediaries are the brand ambassadors who are paid crores of rupees, high consumption of power, high cost of warehousing and transportation. The present intermediaries have contributed not only to the economy but also to the substantial social development of the country. Further, small retailers are charged with keeping two-thirds of the margin with themselves, which is factually incorrect. Since 2005, big corporate houses have been engaged in retail operations and their prices are either higher than, on a par with, market prices. This establishes that the two-thirds of the total margin is kept by these big retailers and they are not going to sell their products at lower prices. Therefore, charging the retailers with keeping huge margin is only an attempt to malign the trading community in order to find ways to allow MNCs in the retail sector. However, these arguments can be overruled in the light of the ICRIER study 3 conducted in India in 2008, which showed that although unorganized retail suffered initially with the opening up of organized retail in their vicinity, this effect significantly weakened over time. The rate of closure of unorganized retail shops in gross terms was found to be 4.2 % per annum, which was much lower than the international rate of closure of small businesses. Similarly, the rate of closure on account of competition from organized retail was found to still lower, at 1.7 per cent per annum.

This was achieved through competitive response from traditional retailers and through improved business practices and technology up gradation. In our view, the development of organized retail has the potential of generating employment for both the skilled and unskilled sections of the population. The Government can protect small retailers by restricting FDI to be permitted only for stores having floor size greater than, say, 2,000 square feet. Moreover, monopolies of large corporate houses can also be controlled by the Government by enforcement of strict regulations and, where needed, through the Competition Commission of India which is empowered to evaluate abuse of dominant position. Every coin has two aspects same as here negative and positive impacts of FDI are there .FDI in multibrand retail should be seriously considered by the government and, as with many other sensitive sectors (like defence), a gradual opening up could be made possible. Despite country wide speculation on the plight of small retailers, India needs to take a lesson from China where organized and unorganized retail seem to co-exist and grow together. Further, Indias local enterprises will potentially receive an up gradation with the import of advanced technological and logistics management expertise from the foreign entities. Entrance of retail giants will help the country to build infrastructure and which will be indirectly helpful to intermediaries for better supply of goods. On the other hand if we look on the negative view here comes the problem of Unemployment even 1% fall in unorganized retail will lead to unemployment of million people which include intermediaries, small shopkeepers etc.

IMPACT OF FDI ON CONSUMERS Consumer welfare is a key component of policy-making in developed countries. In developing countries like India, the interest of consumers often does not receive the attention and importance it deserves. This is especially true in the case of the retail FDI policy in India. The policy seems to cater to a variety of stakeholders except the most crucial one, namely, consumers, whose preferences, choices and spending patterns contribute greatly to economic growth. One of the reasons for this is that in India, consumer fora, which can voice the consumer viewpoint, are weak and more organised stakeholders, special interest groups, etc., drive the policy agenda, especially in the debate on liberalisation of modern retailing. Hence, the common consumer perspective is either ignored or taken for granted. However, by ignoring consumers, the goals of enhancing consumer access to goods and services, and reduction of inequality and poverty may not be achieved.

The policy of allowing 51 per cent FDI in single brand retail assumes that Indian consumers are brand conscious and the policy would facilitate entry of more foreign brands for the benefit of Indian consumers. However, this paper shows that the single brand FDI policy has benefitted only a small proportion of the Indian population the elite, high-income Indian consumers. They too find this policy inconsistent due to high import duties. If consumers have not benefitted, the rationale behind such a policy is questionable. Moreover, there should be synergies between policy decisions across different ministries. If the policy decision is to give Indian consumers access to more foreign brands, then import duties on them should be lower. More importantly, the retail policy needs to focus on how it can benefit the majority of the Indian consumers (especially the low and middle-income consumers) by giving them access to branded products at lower prices. Multi-brand foreign retailers such as Wal-Mart and Tesco, who have low margins and offer low price, cater to the mass market. However, the present policy does not allow them to service the Indian consumer directly. This has led to a reduction in consumer welfare. The present study also shows that Indian consumers are price sensitive and will patronise both traditional and modern outlets in their search for the best value on different shopping occasions. As consumers shopping needs and preferences vary by occasion, there is opportunity for both traditional and modern formats to co-exist and grow. The fear that modern retail will wipe out the traditional sector may be unfounded. The surveys found that a majority of the respondents is willing to experiment with different brands and want more foreign brands to enter the Indian market. They are in favour of allowing FDI in multi-brand retail. This makes a strong case for allowing FDI in multi-brand retail. Apart from providing Indian consumers more choices in the form of reputed, good quality brands, liberalising multi-brand retailing in India is likely to facilitate much greater inflows of investments. This, in turn, will lead to the development of more efficient and lower cost supply chains, resulting in better quality as well as lower-priced products for Indian consumers. This will increase consumer spending, which in turn, will drive growth in all sectors of the economy in a virtuous cycle. Moreover, the present restriction of FDI in multi-brand retail is not really an entry ban. Several foreign brands and retailers have established a presence in India through other entry routes. However, by not allowing direct FDI in multi-brand retail, the country is losing investment inflows while Indian consumers are left with limited choice. While some Indians are traditional retailers, all Indians are consumers. The benefit of the majority of the population has to be taken into account in policy-making. In the past, Indian consumers have benefitted from liberalisation. An example of this is the liberalisation in the telecommunication sector, which has led to more access, better quality, better services and lower prices for consumers. The entry of foreign players in the automobile sector has made the domestic industry globally competitive and even middle and low-income consumers in India can now afford to own cars. The retail FDI policy also should be examined in the light of its impact on consumers.

Global experiences show that FDI in retail can sometimes negatively impact consumers if corporate retailers adopt anti-competitive practices such as predatory pricing. In India, the Competition Act 2002 has provisions to check abuse of dominant position by major players, including predatory pricing. In the Act, dominant position is defined as a position of strength, enjoyed by an enterprise, in relevant market, in India (The Competition Act, 2002, No. 12 of 2003, pp. 9). To protect the interest of consumers, the Act can be further strengthened. For instance, the dominant position can be clearly specified, in terms of the market size of the retailers, as has been done in countries like Australia. Indian consumers are protected under the Consumer Protection Act, 1986, and the Consumer Protection (Amendment) Act 2002. This Act is outdated. The retail sector is evolving and many new retail formats have developed. These are not explicitly covered under the present Act. The process of registering a complaint and handling of legal cases in India is lengthy. In addition, there is no provision for protecting consumers against predatory pricing. Hence, the Act needs to be modified to ensure consumer protection and welfare. There is need for a large consumer survey in India, which focuses on the likely impact of FDI retail policies on consumers. Since India is not a homogenous market, a larger sample size will help to capture more variations in consumers - shopping behaviour and perceptions across different regions of India. This will also help to draw up state-level retail policies.

Effects of FDI on various Stakeholders

1) Impact on Farming Communities -A supermarket revolution has been underway in developing countries since the early 1990s. Supermarkets (here referring to all modern retail, which includes chain stores of various formats such as supermarkets, hypermarkets, and convenience and neighbourhood stores) have now gone well beyond the initial upper- and middle-class clientele in many countries to reach the mass market. Within the food system, the effects of this trend touch not only traditional retailers, but also the wholesale, processing, and farm sectors. When supermarkets modernize their procurement systems, they require more from suppliers with respect to volume, consistency, quality, costs, and commercial practices. Supermarkets impact on suppliers is biggest and earliest for food processing and foodmanufacturing enterprises, given that some 80% of what supermarkets sell consists of processed, staple, or semi-processed products. But by affecting processors, supermarkets indirectly affect farmers, because processors tend to pass on the demands placed on them by their retail clients.

Supermarket chains prefer, if they are able, to source from medium and large processing enterprises, which are usually better positioned than small enterprises to meet supermarkets requirements. The rise of supermarkets thus poses an early challenge to processed food microenterprises in urban areas. By contrast, as supermarkets modernize the procurement of fresh produce (some 1015% of supermarkets food sales in developing countries), they increasingly source from farmers through specialized and dedicated wholesalers (specialized in product lines and dedicated to modern segments) and occasionally through their own collection centres , where supermarkets source from small farmers, they tend to buy from farmers who have the most non-land assets (like equipment and irrigation), the greatest access to infrastructure (like roads and cold chain facilities), and the upper size treacle of land (among small farmers). Where supermarkets cannot source from mediumor large-scale farmers, and small farmers lack the needed assets, supermarket chains (or their agents such as the specialized and dedicated wholesalers) sometimes help farmers with training, credit, equipment, and other needs. Such assistance is not likely to become generalized, however, and so overtime asset-poor small farmers will face increasing challenges surviving in the market as it modernizes. When farmers enter supermarket channels, they tend to earn from 20 to 50% more in net terms. Among tomato farmers in Indonesia, for example, net profit (including the value of own labour as imputed cost) is 3339% higher among supermarket channel participants than among participants in traditional markets. Farm labour also gains. But supplying supermarket chains requires farmers tomake more up-front investments and meet greater demands for quality, consistency, and volume compared with marketing to traditional markets. 2) Impact on Traditional Mom and Pop Stores There are a multitude of reasons being floated around to prevent the liberalisation of the FDI norms for Indian retail: -Primary among these is the concern regarding the kirana stores as well other locally operated Mom and Pop stores being adversely affected by the entry of global retail giants such as Walmart, Carrefour and Tesco. As these brands would come with advanced capabilities of scale and infrastructure in addition to having deep pockets, it is argued that this would result in the loss of jobs for lakhs of people absorbed in the unorganised sector. - Fears have also been raised over the lowering of prices of products owing to better operational efficiencies of the organised players that would affect the profit margins of the unorganised players.Instability surrounding the political arena with a number of scams of varying magnitudes doing the rounds has also led to a sense of uncertainty among foreign investors.

-Many Industry experts though feel that the reservations against the introduction of Multi-Brand retail are mostly misplaced. The successful deployment of 100%FDI in China is a case in point. Partial FDI in retail was introduced in 1992 in China. Subsequently, in December 2004, the Chinese retail market was fully opened up to utilise the enormous manpower and wide customer base available that has led to a rapid growth of the sector. Today, its retail sector is the second largest (in value) in the world with global retailers such as Walmart, 7-Eleven and Carrefour comprising 10% of the total merchandise.

Multi-brand retail, if allowed, is expected to transform the retail landscape in a significant way: -Firstly, the organised players would bring in the much needed investment that would spur the further growth of the sector. This would be particularly important for sustenance of some of the domestic retailers that dont have the resources to ride out the storm during an economic slump such as the case with Vishal, Subhiksha and Koutons, which couldnt arrange for funds to sustain their growth. -The technical know-how, global best practices, quality standards and cost competitiveness brought forth through FDI would augur well for the domestic players to garner the necessary support to sustain their growth. Indian has also been crippled by rising inflation rates that have refused to come within accepted levels. A key reason for this has been attributed to the vastly avoidable supply chain costs in the Indian food and grocery sales which has been estimated to be a whopping US$ 24 Bn. The infrastructure support extended to improve the backend processes of the supply chain would enable to eliminate such wastages and enhance the operational efficiency. -FDI in multi-brand retail would in no way endanger the jobs of people employed in the unorganised retail sector. On the contrary, it would lead to the creation of millions of jobs as massive infrastructure capabilities would be needed to cater to the changing lifestyle needs of the urban Indian who is keen on allocating the disposable income towards organised retailing in addition to the local kirana stores. These stores would be able to retain their importance owing to their unique characteristics of convenience, proximity and skills in retaining customers. Also, these would be more prominent in the Tier-II and Tier-III cities where the organised supermarkets would find it harder to establish themselves. FDI in multi-brand retail is therefore a necessary step that needs to be taken to propel further growth in the sector. This would not only prove to be fruitful for the economy as a whole but will also integrate the Indian retail sector with the global retail market. It is not a question of `how it will be done but `when`.

3) Impact on Consumers and existing Supermarkets Supermarkets tend to charge consumers lower prices and offer more diverse products and higher quality than traditional retailersthese competitive advantages allow them to spread quickly, winning consumer market share. In most countries supermarkets offer lower prices first in the processed and semi processed food segments. Only recently, mainly in the first- and second-wave countries have supermarket prices for fresh fruits and vegetables been lower than traditional retailers (except in India). The food price savings accrue first to the middle class, but as supermarkets spread into the food markets of the urban poor and into rural towns, they have positive food security impacts on poor consumers. For example, in Delhi, India, the basic foods of the urban poor are cheaper in supermarkets than in traditional retail shops: rice and wheat are 15% cheaper and vegetables are 33% cheaper.

Existing Indian retail firms such as Spencer's, Food world Supermarkets Ltd, Nilgiri' s and ShopRite support retail reform and consider international competition as a blessing in disguise. They expect a flurry of joint ventures with global majors for expansion capital and opportunity to gain expertise in supply chain management. Spencer's Retail with 200 stores in India, and with retail of fresh vegetables and fruits accounting for 55% of its business claims retail reform to be a win-win situation, as they already procure the farm products directly from the growers without the involvement of middlemen or traders . Spencers claims that there is scope for it to expand its footprint in terms of store location as well as procuring farm products. Food world, which operates over 60 stores, plans to ramp up its presence to more than 200 locations. It has already tied up with Hong Kong-based Dairy Farm International. With the relaxation in international investments in Indian retail, Indias Foodworld expects its global relationship will only get stronger.