The spotlight is back on foreign direct investment (FDI) in multi-brand retail, an issue that’s been on and off the government’s agenda for the past seven years at least.
Earlier this week, The Economic Times said the commerce ministry was likely to propose 100% FDI in retail and the department of industrial policy and promotion was expected to float a paper on the subject.
Currently, India does not allow any overseas investment in multi-brand retail, while 100% is permitted in the wholesale or cash-and-carry business and 51% in single-brand retailing. The organized sector makes up about 5% of the total $400 billion retail industry in India.
The Left parties and the Bharatiya Janata Party, which don’t see eye to eye on most things, have traditionally resisted opening up the retail sector in India. The Associated Chambers of Commerce and Industry of India appears to have now joined ranks with them.
The lobby group is resisting any move to open up the sector at one stroke to multinational companies (MNCs). It argues that the move should be gradual and domestic players should be consulted before any policy is announced.
Home-grown retail companies such as Big Bazaar, Reliance Fresh and More, which have survived the recent downturn, may look askance at overseas giants being allowed to set up shop on their turf.
But if the entry of organized retail has benefited consumers and local vendors, why shouldn’t global giants such as Walmart Inc., Carrefour SA and Tesco Plc be allowed in? What’s wrong with the consumer being spoilt for choice? Such an opening up could lead to lower prices all round, which in turn could rein in inflation.
The supply chain will become more efficient as vendors are pushed to upgrade infrastructure. Going by the McDonald’s experience, even farmers and small, local retailers don’t appear to be under threat from the multinationals. Quite the reverse: farmers who supply to the fast-food firm have been able to improve yields and quality.
At the ground level, where the resistance is the sharpest, there doesn’t seem to be any evidence that organized retail has driven out the small, neighbourhood kirana stores. In that case, why would they be any worse off if MNCs come in? In fact, a study by a retail consultancy company shows that small retailers in the metros have grown by around 20% in the last four-five years.
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