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Should India Allow 51% FDI In Retail Sector?

Discussion in 'Debate Masterminds' started by The_Big_K, Dec 5, 2011.

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Should Indian Government Allow Inward FDI In Retail?
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The_Big_KThe Good Administrator

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Indian economy & politics is at a crucial point in history. Government of India has agreed to allow 51% Foreign Direct Investment aka FDI in the retail sector. The opposition has made it clear that they're going to resist this decision by the Indian Government. Those who aren't aware; FDI brings in capacity of the foreign investor to gain control in management, JVs, transfer of technology (questionable) etc. FDI also ensures that the investor gains control of the assets, land and in few cases, mines as well. The Government claims that FDI will ensure a greater benefit to the farmers; which in my personal opinion is a big joke. In my opinion; Government is making a huge mistake (or is it deliberate?) by allowing FDI in retail. Instead of encouraging competition among Indian retailers; allowed FDI, in my opinion is suicide.

I wish to know what CEans think about the whole burning issue of FDI. Voice your opinion.
The_Big_K, Dec 5, 2011 #1 AbraKaDabra likes this.

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Guess what? I am supporting FDI (Provided FDI is limited to foreign countries!). According to me, India does not need foreign direct investment. What it really needs is proper nurturing by Government. For those who have seen news recently know what will be the bad impacts of FDI in India. Even China has placed stringent restriction on such type of Investment. Thailand has destroyed its retail market because it has allowed 100% FDI. Is it beneficial to Farmers? I don't think so. You see that if we Indians even after so many years have not been able to benefit our own farmers. Will the foreigners do it? I think that Farming is actually a very profitable business. People think that it is dependent on weather. It is not so. If farming has been a failed business, it is due to the unavailability of electricity, irrigation facilities, government's wrong minimum support prices etc. To tell you the truth, do you know how minimum support price is fixed? It is dependent on the cost incurred. And how is this cost incurred fixed? The labor done by farmer (who owns a farm) =INR 102.75 per day. Laborers employed by the farmer= INR.102.73 per day. So how wrong that a master earns just 3 paisa more than the laborer? (ridiculous) On what basis are you establishing these figures and prices? (The figures are true as per my knowledge in markets around Nagpur)

Only if we are able to fix our internal drawbacks, I don't think that we will ever require an FDI. Here is what we can do. 1. The government can invest in our own infrastructure. 2. Indian companies or Indian private players can come in farming sector and improve the farming infrastructure. Are these suggestions that hard to implement?
Issue, Dec 5, 2011 #2 AbraKaDabra likes this.

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The_Big_KThe Good Administrator

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Crazy ElectricalEngineer Issue said:

Guess what? I am supporting FDI (Provided FDI is limited to foreign countries!). According to me, India does not need foreign direct investment. What it really needs is proper nurturing by Government. ... ... Only if we are able to fix our internal drawbacks, I don't think that we will ever require an FDI.

Your response is very confusing. FDI - which we are talking about is inward FDI by *foreign* companies . Or are you referring to outward FDI? Are you supporting Indian government's decision or opposing it?
The_Big_K, Dec 5, 2011 #3

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oops sorry for confusion. I am trying to say FDI looks good outside India. We do not require it here. (In marathi- Durun Dongar Sazre!) To make it clear: I am opposing government's decision for 51% FDI in retail.
Issue, Dec 5, 2011

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I won't say a big no for allowing 51% FDI in retail sector. Too early to say no to the new changes. I do not want to sound like a pessimistic still, do you think that we are doing wonders with our current policies?? For me, for an example in farming sector, at-least FDI will stop the benefits of middleman who take unnecessary advantage and eat the margins from the poor farmers. After allowing FDI in retail sector farmers may tend to get higher prices for their products by directly purchasing by these retailers. Since ages middlemen are keeping the prices given to farmers low. Big retail companies will find direct purchasing profitable thus farmers may get a better deal for their products. Consumers also stands to gain as prices may go down due to direct purchase and competition. Although one may say that I am trying to live in illusion world, but you never know. And look at the history FDI worked wonders for China, South Korea, Singapore and other countries. You never know if it will click for India as well. Also, its not something written on stone; if it won't work decision can always be reverted back ??? Your Thoughts Please. -CB
crazyboy, Dec 5, 2011 #5 AbraKaDabra and Issue like this.

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A Bharti Walmart spokesman says the cash-and-carry wholesaler sources about 90% of its products locally. Bharti Walmart has built a direct network of 400 SMEs in less than three years of entering the country. And more than 40% of its total products are supplied by small and micro enterprises.

Future Group, the country's largest retailer, has more than 4,000 SMEs supplying more than 35% of its total requirements. "They have become our partners for a decade now and understand the business well to service us accordingly," says Future Group Chairman Kishore Biyani. He says it is important to source from smaller business because the retail business is highly localised.
source: Economic Times

While potatoes sell at an average of Rs 10 to 12 per kg in the market, farmers get less than a rupee per kg and profits are pocketed by middlemen its the same with major fruits and vegetables In a report submitted to Prime Minister Manmohan Singh in March, the committee of a group of chief ministers chaired by Gujarat CM Narendra Modi.prioritized reducing farm gate to retail costs, saying, "To some extent, farmers will benefit from promotion of organized retail/contract farming as it will have stakes in increased farm production." Hence I would support FDI in retail and it would bring a new group of organized retail in India and large opportunities for sme's as well as farmers. We need thinnk about 70% of people who live in villages rather than think of only those in cities.
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Gandalf, Dec 5, 2011 #6 optimystix likes this.

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It is true that farmers get less than a Rupee for the their potatoes. It is of course pocketed by midle men. But why can't we invest our own money? Why do we need foreign direct investment? We can have more food chains like Haldiram and Narula. Depending on others will not solve our purpose. To me, investment is necessary but it should not be foreign killing our businesses. One more fact- It is true that around 10 million jobs will be created. I agree. But it will be on the cost of 50 million self employed people in retail sector. Walmart and other food chains have been notorious even in their home countries America! Investment by our companies in farmer's interest will be more beneficial. It will

take time it will be a sure shot option of removing most of the drawbacks in our Public distribution system. 9. GandalfCE-Maniac
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Do u think Haldirams is not selling for very high margins?? Yes it is also doing the same thing Its MRP's are more twice the selling price to wholesalers @Issue : It would have an Indian partner even if it is allowed 51% in company Dont you go for ICICI Lombard , Bharti AXA, Vodafone Essar , Bajaj allianz, Tata Docomo Aren't Lombard , AXA, Vodafone , Allianz foreign companies. Have destroyed the indian insurance or communication sector In Fact NTT Docomo in India has revolutionized the pricing with paisa billing the same will become with retail sector
Gandalf, Dec 5, 2011 #8 optimystix likes this.

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Crazy MechanicalEngineer Gandalf said:

Do u think Haldirams is not selling for very high margins?? Yes it is also doing the same thing Its MRP's are more twice the selling price to wholesalers

See in a similar way, foreign retail brands will also charge high just like HaldiRam. You just said it! See, initially the foreign retail chains will be giving out products at lower prices. Once the local unorganized retailers are finished, they will be selling things at exhorbitant rates. They will be just trying to get monopoly.

Gandalf said:

@Issue : It would have an Indian partner even if it is allowed 51% in company Dont you go for ICICI Lombard , Bharti AXA, Vodafone Essar , Bajaj allianz, Tata Docomo Aren't Lombard , AXA, Vodafone , Allianz foreign companies. Have destroyed the indian insurance or communication sector In Fact NTT Docomo in India has revolutionized the pricing with paisa billing the same will become with retail sector

Yes, there will be good effects as well but it will be limited to those 10 million jobs. Just think of it, the market comprises of 50 million people today! Will it be good to have 10 million salaried people and lose 50 million self-employed people? By the way, telecom revolution was also contributed by many Indian companies including Dhirubhai Ambani's Reliance etc.

Yes, there will be 11. optimystixCE-Star

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I agree with what all of you have said, but there still are things one must consider here. While some of you are of the opinion that instead of allowing foreign players make out a business here, we should let the Indian players do the same. Why dont you see that the Indian markets were open to these 'Indian' players for decades now! We had the money and time but not the interest to do something on it. Its only when the foreigners are showing interest here, that we suddenly feel endangered about the entire situation. It is highly analogous to what the political party MNS was doing to the north Indians in Mumbai. All of a sudden when they noticed the north Indians coming in numbers and driving taxis and opening up street side stalls selling fruits and veggies and other stuffs, they felt endangered and started beating them up and protesting against them asking them to go back and not take away those work opportunities from the local marathi manoos. I dont understand where did the taxis and the roads go when the north Indians were missing until a few years ago. Could the same marathi manoos take up those work and feed their families then? They did not care and not that someone else is doing it, they dont want them to do it to.

A similar situation with the retail market. The retail market has been there for the Indian businesses to take advantage off. But what happened? Did the farmers gain anything? or did the customers do? We still pay the same prices for goods (inflation adjusted) and the farmers get the same rates too. Its the middlemen who have always benefited and manipulated the prices to their advantage. Though, like CB mentioned, there is a possibility that allowing FDI may erode away the middleman business. But on practical grounds this really wont be possible again. What will instead happen is- the farmers getting the same rates, the cusumers paying the same prices and all the money that used to go to the middlemen earlier would go to the foreigner's pockets. Remember, these foreigners are coming here to do business, and not to show mercy on our poor farmers! But all in all, I support allowing more FDI into our retail market. The British, when they came to India, looted us badly before giving us independence but in return built roads, bridges and buildings of unparalleled quality. In today's case, we are being looted by our own countrymen and the politicians in general. So this wont change. Let the foreigners loot us instead (enough with these politicians) and build us good retail infrastructure-better supply chains, cold storages (which are very badly needed) among others. A similar kind of a situation took place when we were trying to open our markets to the foreigners in other cases such as the stock markets, retail, telecom, automobile etc. Today, the influx of foreign players in automobile market has been a boon to our economy. We have better quality, low cost cars than in most parts of the world and our homegrown companies such as Tata's and Mahindra's got into the competition groove and have become international players in a relatively short period. I think, we should take our chances with FDI. Atleast, they will bring in order and discipline in this segment if not help us benefit financially. Higher 'chances' are that our local producers will get 'better' price for their products. Some of them surely will, if not all. Let's hope for the best
optimystix, Dec 5, 2011 #10 Issue, Reya and Gandalf like this.

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