One Pager

FDI IN RETAIL IS IT BENEFICIAL TO INDIA

Prime Minister Manmohan Singh projects FDI in retail as a boon for the agricultural sector. Unfortunately, if you examine the realities, it will spell a death knell for farming. It will be the beginning of an end for Indian farmers.

It has happened in the United States. Ever since big retail - dominated by multi-brand retailers like Wal-Mart - entered the market, farmers have disappeared, and poverty has increased. So has hunger.

Today, not more than 700,000 farmers remain on the farm in America. Poverty has grown, and hunger has broken past 14-years record.

In Europe, despite the dominance of the big retail, every minute one farmer quits agriculture. This is because farmer's income across US/EU is on a downslide.

Though FDI in retail trade is restricted till recent announcement, but the Government of India has a more liberal policy towards wholesale trade, franchising, and commission agents’ services, thus preparing the ground for FDI in retail as well. Foreign retailers have already started operations in India through various routes: (i) joint ventures where the Indian firm is an export house; (ii) franchising (eg. Kentucky Fried Chicken, Nike); (iii) sourcing of supplies from small-scale sector; (iv) ‘cash and carry’ operations (Giant in Hyderabad, Metro in Bangalore); (v) non-store formats – direct marketing (Amway). Large international retailers of home furnishing and apparels such as Pottery Barn, The Gap and Ralph Lauren have made India one of their major sourcing hubs. Up to 100 per cent FDI is allowed in ‘cash and carry’ operations. The Great Wholesaling Club Ltd is one such example. In February 2002, the world’s largest retailer, Wal-Mart, opened a global sourcing office in Bangalore. In November 2006, it announced its entry under a joint venture with the Indian corporation Bharti. For the time being, Bharti is to own the chain of front-end retail stores, while the two firms will have an equal share in a firm that will engage in wholesale, logistics, supply chain and sourcing activities. This is seen as a preliminary step by Wal-Mart pending the removal of all restrictions on FDI in retail trade.

The reasons given by the Government for allowing FDI in retail:

Why is the government so keen in inviting FDI in the retail sector? Let us look at some arguments made by the Government for allowing FDI:

 (i) “Only a few global firms possess proprietary expertise in retail trade. They would not transfer their expertise to local firms unless they were allowed to operate in the domestic market.”

Reality: In the literature on retail, we could not trace the existence of any cutting edge proprietary expertise – either technical or managerial.

(ii) “The government needs FDI to meet its foreign exchange requirements.”

Reality: Because of large capital inflows, the Government of India is today burdened with huge and growing foreign exchange reserves. By April 13, 2007, the foreign exchange reserves had swollen to $203 billion. The argument for FDI in retail to attract foreign exchange is not tenable.

(iii) “Only global retailers can satisfy the rising and varied demands of Indian consumers.”

Reality: It has yet to be shown which product or service is being offered by foreign retail firms is unavailable at present to Indian consumers, or cannot be provided without FDI. Moreover, the alleged benefits of ‘consumer choice’ are being inflated. Indeed, the availability of excessively wide choice makes it so complex and time-consuming for the consumer to decide that it leads to stronger loyalty to particular brands.

At one side Government is giving reason for allowing FDI in retail that it will improve supply chain management and avoid the wastage of food because lack of cold storage as the global firms have expertise in supply chain management and they will establish cold  storage in India, but why Government cannot establish more   cold storage or improve supply chain management. This is only because they are indulging in more politics than our Country.

Despite the destruction of farming globally by the supermarkets, the Ministry for Commerce and Industry is gung-ho about the virtues of foreign direct investment in multi-brand retailing, which means allowing the big players like Wal-Mart and Tesco to swamp the Indian market.