Indra’s Drishtikona (Viewpoint)

FDI in Retailing: Who is Afraid?

Posted : September 29, 2005 at 10:58 pm [IST]

Left parties in India are fiercely opposed to any move to allow foreign direct investments (FDI) in retailing. Why are they doing it? Who will be affected negatively, if FDI in retailing is allowed, and if MNCs will enter in India?

Are they concerned about small retailers? Will they be pushed out? Will there be a huge loss of jobs? And then will the giant global retailers squeeze the suppliers? Will the global retailers eventually harm consumers by encouraging skewed urban development?

The Leftists are not interested in seeing around particularly to China from where they have imported their ideology. Will the entry of global retailers lead to large-scale displacement of labour and closure of ‘kirana’ shops? It is a fact that many unemployed people see retail (kirana shops) as the easiest business to start. But the presence of MNC retailers will hardly affect these kirana shops, as these shops cater to a different category of consumers. Mostly these shops sell the cheapest of the items, particularly the unbranded ones and are manned mostly by the family members. They operate in near vicinity of habitations depending on the requirements there. MNCs will not affect their business. Will MNCs go in the rural India or even the very small towns and affect the grocery shops there? MNCs will hardly affect the existing retail shops, as they will take years to go to smaller cities even. It will not be viable for them. It has not happened anywhere in the world.

We can see the presence of milkmen still moving around distributing milk from door to door to their permanent customers, and also the weekly markets doing a huge business in vegetables and fruits and catering to every sector, even though the established Mother Dairy with Safal (vegetables and fruits) outlets are present every where.

Will FDI in retail sector affect the big retailers of India in organized sector who have appeared in last few years? It will. It will be in the same way as it has happened in other sectors, such as auto components or automobiles. The good and genuine ones will compete, survive, and grow. But those who will not be world class in the management of the retail business will perish. And in national interest it must be so. Those in organized sector must offer the best (low) price every day for the consumers, as Wal-mart does. They will learn to work with the supplier, and assist them to reduce their cost without any loss to quality. They will learn to improve the efficiency of their supply chains by using various managerial tools and techniques as well as technologies. They will learn to pass on part of the cost reduction to their consumers and make it affordable for the majority. Now the leaders of the retailers in organized sector also have agreed that with FDI in the sector they too also will be benefited.

But the main necessity of these MNCs in retail sector is for exposing our produce to the global market that even the major domestic players in retails will not be able to do for many years to come. As such some of them are sourcing considerable amount from India. But with the presence in India, they will be able to appreciate the capability of our manufacturers, producers, or artisans better, and will then increase the sourcing from India much more than what they are doing today.

The presence of these retailers will also mean higher salaries and better perks for the people they will employ as it has happened in other sectors. And retailing is not an automatic plant working with robots. It will employ local people in large number too.

As already known, thirty-five of the world’s 50 largest retailers are already present in China. Evidence available so far suggests that China has gained more from the entry of global retailers than it has lost from it. Wal-Mart itself imported more than $18 billion of the Chinese goods.

Can we imagine of the presence of their sophisticated air-conditioned collection centers near around the ports and also on the Golden Quadrilateral, where the produce of the rural India can reach easily and move towards different countries of the world? Perhaps if there is anything, FDI in retailing will improve a lot of employment in smaller towns and rural areas. Globally, growth of organized retailing stimulated consumption. The greater production needed to meet the demand creates jobs.

The Leftists can’t and shouldn’t stop bringing retailing in organized sector. Door has opened for big players. Apart from the existing ones such as Spencers (formerly Giant), Big Bazaar and supermarket chains like FoodWorld are already there. Bigger ones like the Tatas, Anil Dhirubhai Ambani Enterprises and the Goenkas have huge ambitions in this sector.

And even study by the management experts has established the advantages of the organized retailing. A recent study by two IIM Bangalore professors shows that efforts by corporates like ITC and global cash & carry chain Metro demonstrate the benefit of a modern distribution system. Tomato and cauliflower farmers in Hosakote and Kolar in Karnataka, and wholesalers and retailers in the Kalasipalayam vegetable market, Binny market and the APMC yard in Yashwantpur, Bangalore improved their realization by22% and brought down the price to consumers by 11 per cent.
And leftists should depend on our experts to build adequate checks in the permission granted to FDI retailers to prevent monopolies and exploitations of the local stakeholders.
Who will be looser then? And why are the leftists opposing their entry?

Read about FDI in retail and its potential

- Indra

Category: Government Policy/Administration |