Foreign Direct Investment

Government has cleared the proposal for FDI upto 51% state in direct retail trade in India.  This will pave way for big International retail chain like Wal Mart, Tesco, Carrefour, Metro etc to open their shop in India. This opening has come with certain riders like minimum sourcing of 30% of their merchandising from small and medium industries, presence only in cities exceeding population of one million and Sates are free to allow or not to allow their presence.

There has been big hue and cry on this decision.  Principle opposition party BJP, its friends and some of the government allies are opposing this move from tooth and nail and  observed Bharat Bandh on 20^th September 2012 in protest. 

There is apprehension that with entry of multinational in retail trade, about 5 crore small traders will be rendered redundant and this will give rise to unemployment.  They also contend that it is anti farmer and as such anti India. 

We have seen the rule of BJP during 1999-2004 period and noticed that as far as economic policy of then government is concerned, they were similar to that of congress.   The only difference of ideology is that Congress does the politics of “secular” character and BJP is seen as pro Hindu.  But their move to oppose FDI is only a opposition for its sake or I would say it is populist move alongwith Mamta, SP,CPM and their brethren who came together to show their solidarity otherwise always fight like street kids.

Now let us examine whether FDI will harm the interest of small trader community.   Such fears were raised earlier also when domestic player Reliance announced its foray into retail trade in the year 2005. There was big vandalism in some parts of the country.  Reliance stores were ransacked by mob.  However, Reliance went ahead and opened its stores.  Now see the change.  Reliance and Big Bazar   brought the technology, gave experience to the consumer of  modern retail.  It gave freedom to the consumer to enjoy the best  quality product at the most completive price.  So effect?  The neighborhood traders or “mom and pop” stores learnt the tricks of the trade.  They overhauled their stores, they also introduced technology, made their store more clean, more hygienic, better equipped and ultimately who is the gainer?  Both trader as well as consumer!!

There were big doubts  and protest when KFC came to India.  Today we have large international chains like KFC, Mc Donald, Pizza hut in food business in nook and corner of India.   But with their advent, did we do away with our traditional dishes, Idli Sambhar, Vada, Aloo Bhaji, Samosa, Dhokla?  The only difference which brought in the country that our eating joints have become more modern and competitive.

Now the let us see the fear of losing business of small traders who are typically our neighbor hood stores.   Though there may be some realignment of retail practice by small traders, but theory of  losing business as such is ill founded.  World over the big retail chains like Wal- Mart, Tesco, Carrefour, Metro etc have very big sized stores with size ranging from 30,000 sqft to 2,00,000 sqft.  In India it is next to impossible to find such huge space in the high street because of skyrocketing real estate prices.  It will be totally unviable enterprise for them to be in the heart of city.  Therefore, the next best course of action will be to find suitable space in the outskirt of city or at the best in the lower ground floor of the huge shopping complex.  Our kirana store have the advantage of proximity to consumer,  credit facility, personalized services like home delivery, rate bargaining  etc which will be typically missing at large stores.  Certain countries like China, Malaysia,  Russia, Thailand, Indonesia, Phillipines, etc have allowed 100% FDI in retail business, but their local business channels are still thriving.

By not allowing multinational companies to operate from our country, we only thwart our consumer to get best of  deals.  Consumer is benefited by way of getting best of international products at the most competitive prices.  Our farmer will be richly benefited because there will huge demand of his produce by these stores.  Today more than 30% of our farm produce wasted because of lack of proper storage  and supply chain facility.  FDI will strengthened supply chain management.  Farm produce will be better produced, better stored and ultimately both the consumer and farmer will be gainer.  In India, we have tremendous problem of adulteration in food items like pulses, spices, edible oils, etc.  These items are mostly supplied to consumers directly through unorganized small retail stores.  The small stores, will be able to source their merchandise through these  big stores who have strict quality control system.  Thus there will be serious blow to unscrupulous middleman/trader.  A rough estimate suggest that there will surge of around 10 million new jobs after arrival of FDI in India.  Further government  Policy mandates a minimum investment of $100 million with at least half the amount to be invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing. This is expected to considerably reduce post-harvest losses.

There is another point of view of some quarter.  They say that East India Company entered India for trade during Moghul  rule  and they governed us for 200 years.  This analogy has  got no sound footing.  When East India entered India, Moghul empire was at this nadir of shattering.  There was no concept like unified India.  There were princely states, they had their own currencies and sovereignty and most of the time they were fighting to each other to establish their superiority.  * A strong legal framework in the form of the Competition Commission is available to deal with any anti-competitive practices, including predatory pricing.  We have recently seen the changes in Income Tax laws whereby Vodafone was not allowed to go scot free despite judgement from Supreme Court.  Therefore, any attempt to wipe out local business will not go well with the our stringent regulatory framework. 

Just imagine Can Coasta Coffee or Starbucks  give fight to our own Café Coffee Day.  More such our own store will come up.  We need not worry.