Reasons for FDI
1.      New jobs

·         Over a crore new jobs will be created

·         FDI backed retailer will source 30% of all their products from small scale retailer

·         New manufacturing opportunities for S.M.E’s.

2.      Relief to consumers (Better quality of products at lesser prices).

3.      At least 50% of total foreign investment will be in villages for infrastructure creation.

4.      Transform rural India through improved agro processing and cold chain.

5.      Farm produce will reach store directly thereby reducing wastage, maintaining good quality and lowering prices.

6.      Farmers will get their due in the form of higher prices.



Reasons against FDI       

1.      Foreign owned projects are capital intensive and labor efficient, and not invest much in wage. Skilled workers get paid well above local norms. Most multinationals employ and these haul entire workforce across the continents. The natives rarely benefit, though they find a job in short term but badly paid.

2.      Small retailers in US have been wiped out. Large retail outlets control the retail sector, they work in vey less margins. They may be huge employment rise but with only low quality of life.

3.      A company like Wall Mart uses about 22 lakh employees for its turnover equal to that of the Indian retail market. What is the rationale behind the 1 crore jobs. These rely heavily on technology to leverage operational efficiency.

4.      These companies can pressurize for large discounts and with bulk purchases can buy out all stocks available in the market and may cause a price rise in food and essential commodities.

5.      Small retailers will not be able to compete with huge companies in cities because in cities people are more prone to go to malls and not small stores. The power, turnover and size of the companies will control the retail sector.

6.      Most of the huge companies sell products made in China. If one visits a store in Canada, Mexico or North America everything they sell is made in China and this will of course reduce the business of Indian manufacturers. 



In India only 5% of the retail sector is organized and the rest 95% is unorganized.

When Mr. Rajiv Gandhi spoke of introducing computers, people cried about 1 computer will unemploy 10 people but more people got jobs. When insurance bill was introduced, people said LIC will perish but LIC is flourishing. When private sectors bank were given a nod the again people shouted PSU banks will close but they are more competitive now. When private telecom companies came, people shouted again that BSNL will fail but it’s now friendlier. When automation in industries came, we lost jobs in manual sector and got jobs in industries. When computerization came, we lost manual jobs but got jobs in computerized areas. Changes do have risk but we cannot block them even if we don’t like them. If we had used bullock carts the price hike of petrol and diesel would not have bothered us, but then we changed to vehicles. This is how things work, we go forward. Now we read news digitally and print media is going down, so printers lose their jobs and digital people get jobs. So whether we oppose or not change will happen in retail sector. Some people will lose jobs but others will get jobs.

People do not buy stores or brands, they buy convenience. If Wall mart, Tesco, Carrefour comes to India then there’s no chance that the local stores/kiranas/grocery stores will lose sales because their nearness is their strength.


Myths and Myth Busters - A Government of India view.

1.      Kiranas and retailers will lose – Retailers will benefit from existing policy of sourcing their requirements from wholesale cash and carry stores at a discount. In countries such as Brazil, Thailand, Indonesia, China and Argentina there are no caps on FDI and there are no conditions small retail stores have flourished leading to more employment.

2.       The retail sector will be controlled by foreign stores – The FDI backed stores can only operate in cities and every state has the freedom to allow or disallow FDI backed retail investment.

3.       Farmers will be exploited and will lose their fields and crops to foreign investors – On the contrary, farmers will receive better remuneration for their product and will benefit from additional job opportunities resulting in overall improvement of their quality of life.

The question is: why did the UPA do this when the benefits, if any, will be long in coming?

What Big Retail does is eliminate middlemen in the supply chain. But the net gains accrue more to the retailer (and consumers) than producers. As Yogi Aggarwal wrote in Firstpost, quoting a Mint article by Himanshu of the JNU:  “One of the studies commissioned by the US Congress in 2008 was on the linkage between farm gate and retail prices. The average value of farm share (the share of total retail price received by farmers) declined from 41 percent in the 1950s to around 35 percent in the 1970s, and then declined sharply after the 1980s to only 18.5 percent in 2006…. For the record, an Indian farmer gets anywhere between 60 percent and 70 percent of the retail price for rice and wheat. The percentage varies, but it is upwards of 50 percent for most of food items, including eggs and poultry.”

If farmers are going to get only a small increase in benefits, why did our politicians bite the bullet on FDI in multi-brand retail?

The answer to this question according to me relates to narrow self-interest, and helping cronies out. Consider who will benefit first.

Firstly, the big Indian retail companies like Pantaloons (Big Bazaar, Food Bazaar) are drowning in debt. Allowing FDI in retail will enable these companies to reduce debts by selling stakes to the Wal-Marts of the world. Subhiksha went under due to debt. In recent months, Kishore Biyani of Future Group has sold stakes in Pantaloons (the garments part) and Future Capital to raise money and reduce debt. Other retailers with high debts too will be happy for foreign capital. FDI is thus a partial bailout for Indian Big Retail.

Secondly, banks have been lending too much to Indian retailers. Allowing FDI will enable them to rescue their loans from turning into non-performing assets. Since most of these banks are public sector ones, it is a benefit to P Chidambaram’s fiscal deficit efforts too.

Thirdly, FDI in retail – currently restricted to big cities – means commercial real estate will start stabilizing in prices. While actual investment in malls and stores may be some years away, there is little doubt that FDI is required to lift sentiment in the depressed realty markets of the big cities. Not to forget: politicians are often the biggest “Benami” owners of retail assets. And in election years, these assets have to be encashed to finance re-elections. FDI will bail some of them out too.

Fourth, the only way Chidambaram can raise revenues is by selling household silver like public sector shares when tax revenues are weak and the economy is into a cyclical slowdown. But this can’t happen if market sentiment is weak. FDI in retail is a huge sentiment booster, since it not only rescues Indian retailers from debt, but also boosts bankers and, more importantly, makes foreign investors more interested in Indian stocks. (President Obama, for example, battled for Wal-Mart). Chidambaram cannot even begin his fiscal correction with more disinvestment – and only FDI in retail can help.

The reforms by UPA are all important for the economy, but they are as much driven by the short-term self-interest of UPA politicians, big industry and bankers as by the need for big ticket reforms.

The reason why the reforms will not do much ultimately is this: to make FDI in retail work, you have to make Indian industry itself more competitive, or else the Wal-Marts will be importing Chinese goods to sell in domestic stores.

Only way to create more jobs to replace the ones lost by kirana stores will be to have more flexible labor laws – so that industry and service sector companies employ more people.

By: Sachin Mitruka



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