Whither FDI in Multi-brand Retail?

Ever since the BJP led NDA government came into power in May 2014, it has constantly shown its opposition to the FDI in multi-brand retail.

Created On: Sep 8, 2014 15:57 ISTModified On: Sep 8, 2014 16:02 IST

Whither FDI in Multi-brand Retail?
Ever since the BJP led NDA government came into power in May 2014, it has constantly shown its opposition to the FDI in multi-brand retail. This is despite the fact that the victory of BJP in recent elections was mainly based on bringing in the much needed reform in the Indian economy to boost the ailing industrial production and economic growth. This raises obvious question whether FDI in multi-brand is needed in Indian economy.

Present status of FDI in Retail
The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers. The organized retail however is at a very nascent stage. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India’s GDP.

India being a signatory to World Trade Organization’s General Agreement on Trade in Services, which include wholesale and retailing services, it allowed FDI in cash and carry (wholesale) with 100 percent ownership under the Government approval route in 1997. It was brought under the automatic route in 2006. 51 per cent investment in a single brand retail outlet was also permitted in 2006.

In November 2011, the Cabinet approved 51 per cent FDI in multi-brand retail, a decision that will allow global mega chains like Wal-Mart, Tesco and Carrefour to open outlets in India. The Cabinet also increased the foreign investment (FDI) ceiling to 100 per cent from the present 51 per cent in single-brand retail.

Pros and Cons of FDI in Multi-brand Retail

The following are the main issues raised by those in favour of foreign equity in multi-brand retailing and those opposed to it:
Those against:
• It will lead to closure of tens of thousands of mom-and-pop shops across the country and endanger livelihood of 40 million people.
• It may bring down prices initially, but fuel inflation once multinational companies get a stronghold in the retail market.
• Farmers may be given remunerative prices initially, but eventually they will be at the mercy of big retailers.
• Small and medium enterprises will become victims of predatory pricing policies of multinational retailers.
• It will disintegrate established supply chains by encouraging monopolies of global retailers.

Those in favour:
• It will cut intermediaries between farmers and the retailers, thereby helping them get more money for their produce.
• It will help in bringing down prices at retail level and calm inflation.
• Big retail chains will invest in supply chains which will reduce wastage, estimated at 40 per cent in the case of fruits and vegetables.
• Small and medium enterprises will have a bigger market, along with better technology and branding.
• It will bring much-needed foreign investment into the country, along with technology and global best-practices.
• It will actually create employment than displace people engaged in small stores.
• It will induce better competition in the market, thus benefiting both producers and consumers.

It can be said that the advantages of allowing unrestrained FDI in the retail sector evidently outweigh the disadvantages attached to it and the same can be deduced from the examples of successful experiments in countries like Thailand and China where too the issue of allowing FDI in the retail sector was first met with incessant protests, but later turned out to be one of the most promising political and economic decisions of their governments and led not only to the commendable rise in the level of employment but also led to the enormous development of their country’s GDP.

FDI in multi-brand retailing and lifting the current cap of 51% on single brand retail would be a steady progression toward level of employment and economic development. One hopes that the government would stand up to its responsibility, because what is at stake is the stability of the vital pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio economic equilibrium of the entire country is at stake.

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