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.
NON GOVERNMENT BODIES
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
With the Euro zone being on the verge of a crash in its economy, the paralysed banking systems of the European Union nations have been disclosed to rest of the world. The financial crisis of European Union has brought in front the underlying problems and the erroneous tendencies of the various countries of Europe. It also exhibited the weaknesses that occurred in the structure of the monetary union which was the prime reason behind worsening the situation. The financial crisis of the Euro Zone has brought with it a plentiful of lessons to be learnt by the policymakers.
Strong Institutional Framework & Policies are Important :
It is of utmost importance in today’s scenario to have the good financial policies laid down strongly in the system. It is distinctly understood from the current crisis that the countries which had the unstable fiscal policies were undermined by the economic turmoil before any other nations. One example of the unsustainable policies was exhibited when the financially strong nations were burdened with the financial obligations of the weaker nations. This further weakened the whole of the Euro Zone by weakening the financially strong nations as well in spite of easing out the situation by balancing the debts. Also, the policies once set should be consistently kept under the check. The expenditures should be monitored on a con-stant basis even if it is a boom time for the economy.
Foreign Owned Banks Come to a Rescue :
Although the topic is highly conten-tious in many emerging markets, the foreign banks help in creating a more efficient financial sector. This enhances the competition in the market which lays the foundation for fortifying the domestic banks. For example, PKO BP and Sberbank, the domestically owned banks of Po-land and Russia respectively, braved out the crisis outstandingly because of the copiousness of the foreign banks in these countries. On the other hand, the domestic banks of countries like Parex in Latvia and OTP in Hungary could not cope up with the trouble because of the absence of the sustain-able and strong business model.
An Increase in Savings Ratio Is Required :
There has been a remarkable hike in the personal debts of the people living in Europe and US. This culture has proved out to be extremely dangerous for the economies of these nations as it further enhances the current account deficit and creates more imbalances in the economy. Also the Western nations usually do not have the tendency of saving. However, the crisis calls for the increase in the saving ratio of the nations. The savings ratio has been very low for the European countries as the saving ratio of UK sank down below 0% in mid 2008.
The current crisis requires fundamental decision making by the leaders of the European Union. The learning from this financial crisis can be taken ahead to bring out the breakthrough changes in the current financial systems and improvise the situation. In addition, the support is required at both, domestic as well as international levels.
In Economics, a recession is a period of economic slowdown. One of the causes for recession is widespread drop in spending followed by a supply shock. Recession has many ill effects on the macroeconomic level which in turn affect the microeconomic economy. In Macroeconomics, cumulative effect of recession can be seen through fall in, production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation. Various methods are adopted by adopted and employed by government to respond to recessions such as increasing government spending and decreasing taxation etc.
But as a proverb states, every cloud has a silver lining, in the same way even the so negatively perceived period of recession has some positive effects in the economy which will be further explored in this paper.
Regardless of what people or media say, recession is a good time to get into the business. Just take a look at last economic slowdowns throughout history you’ll find recession last for an average of 10 months than followed by growth period of approx 4 years, which could be very beneficial for a start-ups .
Some reasons to justify why recession is considered as a good time period would be
1). CHEAP RESOURCES
The time of recession is right time for fantastic deals in every category be it be land, equipment, offices, raw materials, labour, etc. At this time every asset price goes down and there is no better time to get into real estates or heavy equipments as it involves huge cash inflows
2). HIRE BETTER QUALIFIED PEOPLE CHEAPLY
Imagine a period of recession where even Microsoft is laying off, there would be no better time where you can hire highly qualified people and at a rate which you can’t get during normal period. Highly qualified People from engineers to accountants are all waiting to get a job
3). COMPETITORS ARE WEAKEND
Because of the recession, your competitors are not only weakened but perhaps even closing up and selling out. Maybe some owners are retiring. All are tightening their belts. There may be a niche for you to slip into if a hole is developing in the marketplace.
4). BETTER INTREST RATES DUE TO BETTER CREDIT RATING
During a recession banks are typically less thrilled about lending money out. However, if your company already exists and has a better credit rating you’ll have your pick of interest rates and other loan features to finance moving your new business forward if it makes sense to do so during the recession.
5). SUPPLIERS ARE GIVING BETTER CREDIT.
Because the credit markets have virtually shut down, the B2B credit flows are keeping money circulating out of sheer necessity. That means a bullish outlook for companies looking for good terms on stock and/or inventories. The main advantage is that all parties have more incentive than ever for finding true win-win situations that allow for cash and stock flow. When everyone is looking to survive, great deals can be had.
6). FINANCE YOUR BUSINESS
If you are starting a business during a recession, you are starting with a very limited budget. Chances are, you don't have access to angel investors or venture capitalists. You may have access to funds from your family or friends since, in a recession, they may not be investing in the stock market or other financial instruments.
7). BETTER PUBLIC IMAGE
The media loves aberrations, and if you are optimistic by expanding or getting into business now, you would be in that category. That means you can generate some great PR by demonstrating your "alternative" view of the market.
8).RECESSION TOUGHEN UP COMPANIES
A recession is a great time to start a company, but it isn't the easiest time to incubate a business. That doesn't mean entrepreneurs should back away from the challenge, however. Adversity brings out qualities that every entrepreneur needs to succeed - guts, problem-solving, strength and perseverance. Starting a company in the lean times helps develop those qualities more quickly, which will help the startups in the long-run.
SOME FAMOUS COMPANY WHICH STARTED DURING RECESSION
It might seem counterintuitive to start a new business when the economy is in the dumps. But a recession can actually be the ideal time for launching a company. In fact, many well-known and successful organizations were born during an economic slump.
Why do these companies succeed? Usually it's because the founders recognized a market need and filled it. Identifying that need — whether it’s related to entertainment, travel or even streamlining how businesses operate — is the key to any thriving enterprise, regardless of the economic climate in which it begins. The following major corporations made it big during recessions by doing just that.
Hyatt Corp. opened its first hotel’s doors at the Los Angeles International Airport during the Eisenhower recession (1957 to 1958). The chain rose to worldwide fame in the following decades and now operates more than 365 hotels in 25 countries with premium services such as wifi hotspots.
Burger King Corp., with its flame-broiled burgers, is another recession start-up. The company began in 1954 when James McLamore and David Edgerton opened a Burger King restaurant in Miami, Fla. During another recession in 1957, the company introduced its successful signature burger — the Whopper. Today, the company operates more than 11,100 locations in 65 countries.
FedEx Corp. began operations on April 17, 1973 as Federal Express, a nod to the Federal Reserve, with whom founder Frederick W. Smith had hoped to get a contract. He didn't, but the company that delivered 186 packages to 25 cities on its first night of operations now manages more than 7.5 million shipments everyday worldwide.
Microsoft Corp. wasn't always the jaw-dropping enterprise it is today. In 1975, when it was created by Harvard University dropout Bill Gates, Microsoft was just a little company in Albuquerque, N.M. It dealt in rudimentary computing languages and began its climb to business stardom with the success of MS-DOS, which was sold and marketed to IBM Corp. and then-IBM clones. Today, the company is estimated to earn more than $60 billion in revenue per year and is branching into new areas including VoIP and CRM.
CNN might be a news giant now, but in recession-plagued 1980, it was a little-known station called The Cable Network News. It revolutionized how people received information when it premiered as the first 24-hour all-news channel. Today, 1.5 billion people across the globe watch CNN.
MTV Networks brought something new and different to the music scene when it debuted in the economic slump of 1981. Intended to be an all-music-video channel, MTV used VJs (video jockeys) to host programs and facilitate transitions between videos. Today, MTV is a global brand with dozens of shows, music-related and not.
Wikipedia Foundation Inc. was born during the recent post-9/11 recession. Established in January 2001, the online encyclopedia had more than 100,000 entries by 2003. Today it is home to more than 2.5 million articles and continues to grow.
Sports Illustrated magazine was launched on August 16, 1954, at the tail-end of a recession. The magazine benefitted from fortunate timing as a boom in professional sports exploded soon after its founding. Sports Illustrated now sells about 3 million copies in the U.S. each week.
GE (General Electric Co.) was established in 1876 by famed American inventor Thomas Edison. In the middle of the Panic of 1873, a six-year recession, Edison created one of the best-known inventions of all time — the incandescent light bulb. In terms of market capitalization, GE is now the third largest company in the world. The enterprise has evolved from a manufacturing-strong business to an enterprise earning more than 50 percent of its revenue from its financial services division.
HP (Hewlett-Packard Development Company LP) was inauspiciously born in a Palo Alto garage at the end of the Great Depression. The electronic company, initially supported by a mere $538 investment, has grown into the first technology business to exceed $100 billion in revenue, earning $104 billion in 2007. It now operates in nearly every country in the world.
Recessions, however, aren’t advantageous only to start-ups. Pre-existing companies can also make incredible gains in years where the economy is down. Some of the most recent success stories are those of Google, PayPal and Salesforce.com Inc. From 2000 to 2001 each of these companies thrived, leading PayPal to go public in 2002, followed by Google and Salesforce.com in 2004.
“Once in a while recession can also turn into an opportunity which can be proved to be a boon for the upcoming businesses”.