FDI IN MULTI-BRAND RETAIL

IF THERE is a paradise for multinational supermarket chains it must be India. The economy of the country is growing heavily. Its retail market is forecast to nearly double to $850 billion by 2020. It is also very fragmented with only very few supermarkets and no dominant chain. But what we need to look into is how good is FDI in multi brand retail for India? There are various aspects that need to be looked into before reaching at a definite answer to this question. FOR: 1. Huge investments in the retail sector will see gainful employment opportunities in agro-processing, sorting, marketing, logistics management and front end retail. 2. Almost 30% of the produce by farmers gets wasted because of the poor infrastructure, storage and transportation facilities. Foreign retail majors will ensure supply chain efficiencies. This will have a salutary impact on food inflation from efficiencies in supply chain. This is also because food, which perishes due to inadequate infrastructure, will not be wasted 3. Policy mandates a minimum investment of $100 million with at least half the amount to be invested in the backend infrastructure which in turn will improve the supply chain efficiencies and will reduce the wastage. 4. Sourcing of a minimum of 30% from Indian micro and small industry is mandatory. This will provide the scales to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology upgradation and income generation. AGAINST:

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India has the highest shopping density in the world with 11 shops per 1,000 people. It has 1.2 crore shops employing over 4 crore people; 95% of these are small shops run by self-employed people. Move to allow FDI in retail will lead to large-scale job losses. International experience shows supermarkets invariably displace small retailers. Small retail has virtually been wiped out in developed markets like the US and in Europe. South East Asian countries had to impose stringent zoning and licensing regulations to restrict growth of supermarkets after small retailers were getting displaced. Fragmented markets give larger options to consumers. Consolidated markets make the consumer captive. Allowing foreign players with deep pockets leads to consolidation. International retail does not create additional markets, it merely displaces existing markets. Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources. In China it works because China is predominantly a manufacturing country and walmart purchases a huge amount of goods from the chinese markets and this will lead to joblessness in manufacturing sector if FDI retail comes in India. Walmart makes its purchases not from a single country but worldwide where it finds the items to be cheap. Even without Walmart, Indian SMEs are being driven out in sector after sector by cheap Chinese imports. For instance, there is no light fittings industry left in India. Same for toys. So, With its huge monopsonic power, Walmart actually depresses wages, by forcing suppliers to cut costs as otherwise they will buy the produce from some other retailer or even from some other country.

There are ways of achieving the former while avoiding the latter. Three simple suggestions to tweak the policy on the anvil are:

1. Increase the percentage of produce that they need to bought from the Indian farmers and the primary sector and making the companies foreign exchange neutral which means they should export as much as they import. It is in the context of Walmart purchasing 70% of its products from the Chinese retails which will make it hard for the Indian retailers to compete with them. But if we make them foreign exchange neutral it wont be able to purchase that much from the Chinese markets. 2. Restrict big box retailers to outside municipal limits and to satellite towns instead of restricting them to within the 53 cities with more than a million people each. This will ease the urban chaos and encourage people to move into less expensive housing outside the big cities. 3. Allow companies like Walmart to own their business in India. At the same time the government must insist that they bring in foreign loans to finance their entire capital investments in India. This will enable Indian financial institutions and banks to remain within sectoral limits and to extend financial assistance to Indian retailers. Above all the policy-makers must realise that while it is an American corporation earning profits for its US shareholders, Walmart is mainly a retailer of Chinese goods. Its business model is quite unique.