Foreign Direct Investment (FDI) is a very sensitive topic, more so if it is in retails. I would put forward my ideas under two broad point-
1. FDI in general
2. FDI in retail
Why does a country seek FDI? Primarily for two reasons-
1. Technological advances brought by the Multi National Companies (MNCs)
2. Capital brought by the MNCs
What is the final aim to seek FDI? Development, if I am not wrong.
First we would understand the term Development.
1. Development is not just growth of GDP/GNP. As Mahboob-ul-Haq and Amartya Sen have identified Development must mean development in nutrition, education and health in addition to economic
development.
2. In the current situation development has been defined as consisting of three concepts-
a. Economic Vitality
b. Ecological Sustainability
c. Social equity
Utsa Patnaik has shown that since 1993-94 (that is after liberalization) poverty has grown in India from 59% to 76%.
Why should FDI not be allowed in India-
1. Our regulatory regime is very weak and buckles under pressure too easily for example GAAR has been postponed, even though it was known that it was a necessary measure to curb abuse of various
provisions, just because it was sending a wrong signal to Foreign Investors. Here one would like to ask whether FDI is for India or India is for FDI.
2. Now it is well documented that Multi National Companies just like Companies of yore have not changed their technique of bribing politicians to gain access to vital re-sources. In such situation Citizen
just becomes a pawn in the hand of Politician-MNC nexus.
3. Money Drain: Off-course it is nobody's concern but it is also a fact that hefty amount of profit and salary etc. will go outside India.
4. FDI should be for our purpose and not because sentiments of Foreign Investors are negative or because rating agencies are giving low ranking to India or that Prime Minister is being called under-
achiever.
5. Economy is under strain, accepted but any development pattern with focus on only 3-4% of the population will ultimately remain flimsy. India has huge capability to grow with internal resources. We
have to educate people, provide dwellings to them and provide employment opportunities to them. If we try to focus on these aspects we would not need FDI for growth.
6. The aim is not just economy in operations but also peace in the society. What happened in the Manesar. Such kind of employment will only create problem in the society. (Labourers were being paid
peanuts in the name of salary-Rs. 5000/- while they had to spend Rs. 2000/- as rent only for a single room).
7. MNCs have the dubious nature of capturing the whole market and thereby discouraging local entrepreneurship. For example government was under strain when Ranbaxy was acquired by an MNC.
8. We remember Posco and Niyamgiri tribals. We also remember threatened beautiful Olive Ridley Turtles. Can we be oblivious to what future we are going to leave for our coming generations?
Why should FDI not be allowed in retail?
1. In India farmer who is 52% of the population is also a consumer. If Farmer is paid more and then also charged more it will serve no purpose for example during 2nd world war farmers were getting
very good price for crop so they, most of them, sold their produce to get better price. After some times price of grains sky-rocketted and they had to purchase same grain at much higher price.
2. Organised retail does not decrease the prices. For example a branded shirt, produced in India can be bought for lets say Rs. 600/- in local shop, will be sold for Rs. 2000/- in organised retail shop after
giving it a brand name.
3. MNCs, by virtue of their prowess in purchasing in bulk often dictate terms to local manufacturers. They buy cheap and sale at high cost. The resulting profit is not shared by various middlemen as
happens in traditional system, rather it is devoured by Corporate.
4. MNCs create wide gulf in the society. Ratio of the compensation being given to CEO and that being given to a shop-floor employee will tell everything. Actually what they are doing is to re-distribute
the income in such a way that maximum profit accumulates with a limited number of people.
5. Experience of shopping. Yes, they give very good shopping experience because of their trained marketing personnels. Are we ready to sacrifice interest of so many of our fellow citizens just for the
sake of this experience. Think it otherwise. (If you have seen Matrix, movie) would you like to live in an artificial environment which gives you kicks of pleasure, thereby losing your human-ness, your
individuality.
Accepted there is a capital crunch in the Country but that crunch is not because of lack of capital formation but because of lack of trust on the market. People keep investing in dead assets like Gold and
Land. Reliance on the speculative FIIs has hurt the market most in the long-term. 2ndly even if we need FDI it is not needed in retail. There is no crisis in the retail sector. We have already allowed FDI
in sectors where investment is needed and situation calls for urgent action for example in infrastructure, manufacturing etc.
SWOT Analysis of Retail Sector:
1. Strengths:
x Major contribution to GDP: the retail sector in India is hovering around 33-35% of GDP as compared to around 20% in USA.
x High Growth Rate: the retail sector in India enjoys an extremely high growth rate of approximately 46%.
x High Potential: since the organised portion of retail sector is only 2-3%, thereby creating lot of potential for future players.
x High Employment Generator: the retail sector employs 7% of work
force in India, which is rite now limited to unorganised sector only.Once the reforms get implemented this percentage is likely to increase substantially.
2. Weaknesses (limitation):
x Lack of Competitors: AT Kearney‘s study on global retailing trends found that India is least competitive as well as least saturated markets of the world.
x Highly Unorganised: The unorganised portion of retail sector is only 97% as compared to US, which is only 20%.
x Low Productivity: Mckinsey study claims retail productivity in India is very low as compared to its international peers.
x Shortage of Talented Professionals: the retail trade business in
India is not considered as reputed profession and is mostly carried out by the family members (self-employment and captive business). Such people are not academically and professionally qualified.
x NoµIndustry‘ status, hence creating financial issues for
retailers: the retail sector in India does not enjoy industry status in India, thereby making difficult for retailers to raise funds.
3. Opportunities (benefits):
x There will be more organization in the sector: Organized retail
will need more workers. According to findings of KPMG , in China, the employment in both retail and wholesale trade increased from 4% in 1992 to about 7% in 2001, post reforms and innovative
competition in retail sector in that country.
x Healthy Competition will be boosted and there will be a
check on the prices (inflation):Retail giants such as Walmart,
Carrefour, Tesco, Target and other global retail companies already have operations in other countries for over 30 years. Until now, they have not at all become monopolies rather they have managed to
keep a check on the food inflation through their healthy competitive practices.
x Create transparency in the system: the intermediaries operating
as per mandi norms do not have transparency in their pricing. According to some of the reports, an average Indian farmer realises only one-third of theprice, which the final consumer pays.
x Intermediaries and mandi system will be evicted, hence directly benefiting the farmers and producers: the prices of
commodities will automatically be checked. For example, according to Business Standard, Walmart has introduced ³Direct Farm Project´ at Haider Nagar in Punjab, where 110 farmers have been
connected with Bharti Walmart for sourcing fresh vegetables directly.
x Quality Control and Control over Leakage and Wastage:
due to organisation of the sector, 40% of the production does not reach the ultimate consumer. According to the news in Times of India, 42% of the children below the age group of 5 are malnourished
and Prime Minister Dr.Manmohan Singh has termed it as ³national shame´. Food often gets rot infarm, in transit and in state-run warehouses. Cost conscious and highly competitive retailers will try to
avoid these wastages and losses and it will be their endeavour to make quality products available at lowest prices, hence making food available to weakest and poorest segment of Indian society.
x Heavy flow of capital will help in building up the infrastructure for the growing population: India is already
operating in budgetary deficit. Neither the government of India nor domesticinvestors are capable of satisfying the growing needs (school, hospitals, transport etc.) of the ever growing Indian population.
Hence foreign capital inflow will enable us to create a heavy capital base.
x There will be sustainable development and many other economic issues will be focussed upon:many Indian small shop
owners employ workers, who are not under any contract and also under aged workers giving rise to child-labour. It also boosts corruption and black money.
4. Threats:
x Current Independent Stores will be compelled to close:
This will lead to massive job loss as most of the operations in big stores like Walmart are highly automated requiring less work force.
x Big players can knock-out competition: they can afford to lower prices in initial stages, become monopoly and then raise prise later.
x India does not need foreign retailers: as they can satisfy the whole domestic demand.
x Remember East India Company it entered India as trader and then took over politically.
x The government hasn‘t able to build consensus.
In view of the above analysis, if we try to balance opportunities and prospects attached to the given economic reforms, it will definitely cause good to Indian economy and consequently to public at large,
if once implemented. Thus the period for which we delay these reforms will be loss for government only, since majority of the public is in favour of reforms. All the above mentioned drawbacks are mostly
politically created. With the implementation of this policy all stakeholders will benefit whether it is consumer through quality products at low price, farmers through more transparency in trading or
Indian corporates with 49% profit share remaining with Indian companies only.
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