FDI In Retail: The Whats And The Whys

By Shobhit Agarwal:

‘Corruption’ and ‘Policy Paralysis’ are the two terms that have become synonymous with the present UPA-2 government and has stuck with it for well over a year now. While corruption was brought to the forefront courtesy the 2G scandal, which has engulfed even someone as clean as our Prime Minister, policy paralysis has been the doing of coalition politics. There is no better testament to the curse of coalition government than the reform in FDI (Foreign Direct Investment) in retail.

A lot has been said and written about the FDI in the past few months. What exactly is FDI and why is the world so keenly observing the outcome of the bill which brings FDI into the retail sector in India? To answer in the simplest of terms, FDI can be defined as investments made by foreign companies into the organizations of domestic markets, excluding investment in stock. The interest in the Indian scenario can be attributed to the fact that the retail sector of India handles about $250 billion every year, and is expected by veteran economists to reach to $660 billion by the year 2015. AT Kearney (a globally famous international management consultancy) recognized India as the second most alluring and thriving retail destination of the world, among other thirty growing and emerging markets.

Now comes the question — How is FDI in retail going to benefit India?

For starters, there is going to be a plethora of job opportunities in a country marred by a large population of unemployed youth. Even the biggest critics of FDI can’t deny it. Moreover, bringing FDI in retail brings in big players like Walmart (USA), TESCO (UK), Metro (Germany), and Carrefour (France) into the domestic market. What these global retailers will do is introduce a lot of innovations and investments in making the end to end supply chain more efficient and of world class standards. The direct repercussion of it will be visible on our production, transportation and storage systems. Our farmers, who for decades have been bound in the shackles of middlemen, will be in a position to have direct collaborations with the biggies and get the due price for their produce. And finally the consumers! Not only will we, the consumers, have a first-hand feel of world class services and infrastructure, but also have a better price and brand range to choose from.

So it all sounds like a win-win situation. Why is there stiff opposition among Congress’ own allies (read Trinamool Congress) to the reform?

There are very few people around who can actually predict or give a logical explanation as to what Mamata Bannerjee has on her mind. On the back of 19 MPs, in an assembly of 543, she has managed to bring a reform, as huge as FDI in retail, to a standstill. Her argument — introducing the biggies in retail will wipe off kirana stores, and this is the last thing which our country (read: West Bengal) wants.

What the adversaries (Ms. Bannerjee, in particular) have failed to notice are some of the obvious facts.

1. Most of the tier-1 Indian cities are overcrowded. So if the biggies were to set shop, they would only be able to do so in the outskirts. As such, there is no threat to our roadside kirana shops.
2. India, as a nation, is still coming to terms with modernisation. Most of us still prefer heading to the shop round the corner, rather than travel a few kilometres, to buy household groceries.
3. The last few years have seen an unacceptable rise in the number of farmer suicides. Having tie-ups with the biggies, will reduce their dependence on the monsoons to a certain extent, and also see them benefit from the introduction of innovative farming ways practised globally.
4. As for fears that market share and revenue might go to foreign companies as domestic players are not competitive enough, the mere presence of global giants will make the domestic retailers pull up their socks and improve their standards. With the kind of infrastructure development that will be on offer, right from grass-root levels, the foreign players will be justified in having a substantial market share.

With declining faith among investors due to the government’s inefficiency to bring forth reforms, and an alarmingly slumping economy, the government would do well to spring into action before it’s too late. And no better way to rest the fear among investors and arouse fear among its ally parties hell-bent on vote bank politics than by introducing the FDI in retail.