Should India lift FDI in Retail as Obama pushed?
The Indian retail industry has been hailed as sunrise sectors of the economy. India has been recognized as leading Retail destination and whole world is eying on it. Retailers globally are effected by stagnation in consumer demand in their home countries, and so double digit growth in consumer demand in India looks like hot cake to them but the same is secured by FDI policies in India. Keeping these facts in mind, it was no news that US President Barack Obama was pushing India to liberalize and open its FDI policy for multi-brand retailing. He said that the stereotype concern that small shopkeepers in India will be impacted, ignores today’s reality.
As we know, currently India allows 51% FDI in single-brand retail and 100% FDI in cash-and-carry stores who can only sell to other retailers and business concerns and not to individual consumers who shops for home consumption.
FDI in Retail has always been a very sensitive issue in India. Supporters of FDI have been highlighting positivity it will bring to Indian economy like greater efficiency, better selection, improvement of living standards, integration with global economy and of course price reduction as a result of better technology and knowhow. But at the same time, people opposing it feels that it is a labor displacing act and will jeopardize unorganized and small retailers of India as well as Indian Retail Players. They believe it will effect balance of our economy when these foreign investors will draw billions of rupee as profit out of our consumer spending.
But if we see many other developing nations like China, Malaysia, Thailand etc., have opened up there Retail Sector without much problems. They faced some hiccups but then they introduced conditional laws to check expansion of foreign Retailers in their country and hence restored wellbeing of locals too. India also need to adopt similar approach where they analyze possible barriers to FDI and ensure that they are addressed in their policies while lifting FDI.
If we see GDP composition of Indian economy, Service sector contributes most, followed by Manufacturing and then Agriculture. But for a developed economy, contribution of Manufacturing sector should be most as it indicates more of saving for the economy. Opening up Retail may result in some losses in Service Sector but if it is accompanied with proper conditions and policies safeguarding interest of domestic retailers and small players it will be fruitful. We need to open it up with conditions which will boost our Manufacturing and Agriculture sector which will not only compensate loss in share of Service sector, but will also bring Profits from rise of Manufacturing and Agriculture sector. Some of the conditions and their benefits which I can think of are as follows:-
Fixing quota of Indian make products in their offerings in India. Say for example if they are offering Rs. 100 values of products, than Rs. 80 worth products should be made in India. This would increase demands of Indian Products and will boost Manufacturing sector too.
Above clause will encourage them to get manufactured some goods in India as there private label. Cost of manufacturing some of these labels may be too less and so Retailer may export it to their outlets in other countries boosting India’s export.
Govt. can impose that 100% of Fruits & Vegetables they are offering are produced in India. This will encourage contract farming by these Retailers in agreement with farmers ensuring high quality produce and better earnings to poor farmers of India.
Further Govt. needs to monitor Prices in order to ensure that price efficiency of these retailers is not killing small Indian players. One of the way will be higher taxation on foreign Retailers.
Government need to analyze the possible harm it could do to Indian Retailers and put appropriate conditions to ensure safeguarding their interest.
But again a big question which arises in our mind is that is our Govt. capable of finding such conditions and open Retail Sector in structural way? Keeping in mind corruption and bureaucracy in India, implementing it would be a challenging job. And if Retail is opened up without such terms and conditions, then it may turn as a grave error for India!
- Rajeev Damani