Nikki a 10 year old girl, steps out of the bus runs desperately towards the shop
of her Mafatlal chacha, who give her candies. But the day govt announces entry
of FDI’s in Retail sector the cloud of uncertainty start grooming out. Nikki asks
her father will chacha's shop will be close? A question many intellectuals tried to answer but still unanswered.
What is Retail? It is the sale of physical goods or merchandise sold from a fix location such as departmental store, boutique, mall etc. It is further divided in to 2 sections: - Organized retail and Unorganised retail.
Organized retail where all items are segregated and bought under one roof like a mall and unorganized retail where there are different things sold at different shops.eg local kirana shop(like Mafatlal shop). Organize retail bring structure in to the system. Its purpose is to bring maximum number of different brands together.
FDI in organized retail in India are presently allowed in partnership with the Indian company or residence, through franchise agreement, strategic licensing
agreement, or through manufacturing and wholly owned subsidiaries. But in recent proposal by govt in parliament 51% FDI investment is directly allowed without any government intervention and also no need of partnership required
with any Indian company. Govt. also proposed 100% ownership of FDI in cash & carry wholesale and export trading. But right now govt. is restricting its proposal for single brand retail, multi brand is still not allowed. Single brand retailer can manufacture and sell one brand only.eg. A Reebok shoe retailer can sell Reebok shoe only not allowed to sell Nike or other brands. Though, govt proposal didn’t define the term Single brand retailing or Multi brand retailing. Multibranding stands for selling multi brands under one roof like Wal-Mart,Tesco etc.
All this bring us to the basic question why India should allow FDI in retail. Production and supply chain is the major problem of India. Better infrastructure, transport, preservation facilities warehousing facilities, latest technology are few of the objectives we can achieve allowing FDI in retail. They help us in reducing wastage i.e. help us in utilising our resources productively. How?
India is a capital deficient economy, we don’t have sufficient capital to meet our infrastructure and other needs, and hence allowing FDI is a one step towards that direction as they would bring more capital with them, which our economy need.
Taking in economics terms, it increases the Aggregate supply of goods and services in the economy. As a result people would able to buy more goods and services at lesser value (as prices decrease). Hence there consumption level and saving rate increases which in turn reduces the cost of capital and affect the investment patterns because due to reduce cost of capital and increasing saving rate more loanable funds are available at cheaper rate, which increases the investment rate in the economy. So according to economics this whole event is a win - win situation which help in growing the economy at a faster rate.
Few other objectives will be achieved like farmers will be incentivising better for their production. Agents/middle men concept will be abolished. Also it will
help in generating huge employment. But most important consumer would be given right value of the money.
Now question arises why so Kolaveri in spite of all these advantages. Besides political agendas , few protagonist believe allowing FDI’s may back fire Indian economy because it would take the job of unorganized sector retailers(Local kirana store), as a result huge unemployment created in economy.
Also retailers like Wal-Mart practised the strategy of giving better incentive to
farmers during their initial days, to finish their competition. But this strategy put them in to huge losses, but looking at the global revenue and their capacity these retailers can afford looses for first 5-6 years and when they feel now producers, distributors etc depend on them and market is in their control they start restricting and enforce their laws and strategy i.e. they now control the “food chain” of your country.
So what could be the possible solution to this problem because we know allowing FDI in retail will be a big boost for our economy but at the same time we fear it could back fire also. So, in my opinion we can stop the bill for now and declare the retail sector to be Infant Industry (Infant Industry Argument) i.e. domestic companies under this sector will be directly help by government. Make our domestic retailers strong so that when FDI will come we can stand in competition with them. But all this must be done with a proper plan and time limit.