Pros and Cons of FDI in Retail:India
The topic has its importance for an MBA aspirant because of the heated discussions happening in the Indian sub-continent.Indian government decided to open the retail market to foreign direct investment, just like it opened the IT, telecom sectors. But the decision brought stiff resistance from opposition as well as from the allies of the ruling party. So here is a sneak peak.
India is considered to be a nation which is best suited for retail investment; the reason being the increasing purchasing power of the Indian middle class. And certain survey results says that India is the second most favoured destination for retail business and thus became the cynosure for many foreign eyes. Domestic players like the Tata’s westside, Reliance fresh, big bazaar etc are already fighting for market space. So when local players are there, what is the need for global players?? Before going into answering this question lets just define a multi-brand retail.A multi brand retail can be anything; a super market, a hyper market or even a shopping mall.
Advantages of FDI:
The first and foremost advantage is that it a non debt method of foreign funds to our economy and will help in the growth of the sector. The FDI policy mandates a minimum investment of $100 million, and it also says half of this needs to be invested in the back end infrastructure, storage, refrigation, sorting and processing. This means better supply chain and post harvest losses. Numbers and surveys say India has enough food production but wastage and lack of infrastructure for storage is what troubling our food security. If the foreign players is a solution to that, well and good. Government also talks about a strong competition commission to regulate bad practices like predatory pricing. Giants will bring in competition and hence reduction of prices, look at the examples of telecom industry, mobile call charges have come down to 60paise per minute from 3-5 rupee per minute. Another bright side is, the exploitation of middlemen will be less and farmer will get better prices for his goods. Liberalisation is always good for consumers, because it brings in better quality, variety and service. Why should the end consumer be always exploited by Reliance, Future, Big Bazaar, Westside..? Let Walmart, Tesco also; atleast we have options to choose from.
Arguments against FDI:
Citing the example of other nations which allowed FDI, the opposition argues that when big players come to mainstream the small retailers will be automatically displaced from the competition. Big players will resort to techniques like predatory pricing( even with laws in place) and which will lead to monopoly. The small kirana or retails outlets employee nearly 4 crore of the Indian population, so job loss will be detrimental to a diaspora of self employed people.
Another arguement against the FDI is that, it is not going to benefit manufacturing sector as the International players will make purchases internationally not domestically.(There is a policy in black & white which says minimum of 30% of sourcing is to be done from the Indian medium and small industries.This if gets implemented won’t hurt our industry but in turn will be boost the manufacturing sector.)
My request to policy makers and whistle blowers:
A country like India where most of the work force is employeed in the unorganised sector(hardware stores, bakeries, small coffee joints are the main types which feeds the unemployeed Indian work force), let FDI happen if it is not hurting the 4 crore people’s way of life. I personally believe if necessary rules are in place, the FDI in retail is not going to hurt the highly fragmented Indian retail Industry. Say- let them set up huge stores but not in prominent business locations, they will be forced to create storage mechanism and infrastructure, thus helping the locality, in terms of jobs. Let them lower prices to attract people thus helping the consumer in getting cheap products. Let them buy groceries from the local farmer. All I intend to say is let India grow, not by exploiting someone but by mutual help.
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