FDI in retail – Boon or bane for India
Foriegn Direct Investment (FDI) in retail means foreign direct investment in the Indian retail business. The retail business can be either a single brand retail business or multi brand retail. At present, foreign direct investment (FDI) in pure retailing is not permitted under Indian law. Government of India has allowed FDI in retail of specific brand of products. But the major concern is regarding the government’s decision to allow FDI of 51% under multi brand retail.
Now FDI would allow foreign companies to bring in the necessary investment to upgrade the retail sector infrastructure across the country.Since their focus would be profit they would set up efficient supply chain management systems to ensure that product deliveries are on time.The emphasis would be on reduction in wastage of food items. This would bring down the food prices which have been a major cause of inflation in the country as well as a source of public dissent against the government.The farmers would get a better price for their produce for two reasons. It would also lead to the removal of the middle men which would provide additional revenue to the farmers (the retail chains would buy directly from the farmers).Contractual farming would mean improved and efficient farming practices as well as higher output and better prices.It would also generate employment opportunities in the wake of improved supply chains that would be set up to cater to these retail stores.It is mandated in the policy that 50% of any investment over a $100 million would be in the backend infrastructure which would benefit by creating jobs as well as infrastructure for a developing country like India.
Again FDI in retail will not benefit the farmers since the large foreign companies will squeeze them for lower prices in order to earn higher margins.The large foreign companies work on wafer thin margins since they offer their goods at low prices. In that scenario they would procure their goods at the lowest possible price to get the maximum benefit. Loss of livelihood for millions of small time traders who would not be able to compete with the large foreign players in terms of prices (foreign companies have deep pockets which the small Indian traders cannot match).Manufacturing sector would suffer since the foreign players would source their products from international markets in order to get low prices.A fragmented market is better than a consolidated market in India’s case simply because the retail sector in India is very small and a large number of small time independent traders and retailers are dependent on it for their survival. Also the middlemen will be replaced by large foreign players who would anyway squeeze the producer for lower prices.The investment by these foreign players will only be in their supply chain and not in developing any other infrastructure (this point can be easily countered).The policy states that State Governments can take a decision about FDI in retail. But FDI is not a State Policy matter. Hence this is not possible. The central government will take the final call.
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