the truth vs hype of fdi

7/28/2019 The Truth vs Hype of FDI

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The Truth vs Hype of FDI

One of the most recent problems which had shaken the UPA government is decision of allow51% foreign direct investment (FDI) in multi brand retail sector. The government had suffesevere criticism from all sides on this decision because of the concern about the losslivelihoods it is likely to create. Let us analyse what actually is FDI in multi brand retail and howit likely to impact the Indian economy. Retailing means selling of goods to the end consumerfinal consumption. The Indian retail sector is divided into two groups that is organised unorganised sector. Organised retail sector includes trading activities of licensed retailers wh

are registered for sales tax, income tax etc. These retailers are publicity-traded supermarkcorporate backed hypermarkets and also privately owned large retail businesses. Soexamples in India include Big Bazaar, V Mart, Shoppers Stop etc. Unorganised retailing on other hand consists of traditional retailing formats like local kirana shops, mandi, beedi/cigarshops, fruit and vegetable vendors and alike. The share of the organised retailing sector in Indretail setup is extremely low which is about only 10% and rest 90% of retailing is done by unorganised sector which mostly employs family members and lack adequate storage logistics facilit

Though the current level of opposition which led to the holding back of the FDI in retail potends to generate a very negative public opinion towards this but the true picture as not as d

as it is shown. There are many flaws associated with the present retailing set up of unorganisector which leaves the consumer with very little choice and poor quality goods. From a study found that about 30-40% of the farmers produces gets destroyed because of lack cold storand warehouse facility. The various riders attached by the government to the opening of mbrand retail in India is likely to take care of such problems. According to these conditions establishing retail store must invest at least 50% of its total investment in developing back infrastructure and facilities like modern product sourcing management, logistics, supply-chmanagement, cold storage,packing,transportation,sorting and processing, refrigeration

which will prevent post-harvest losses and will also lead to infrastructure development employment generation in diverse sectors as according to the commerce minister around

million jobs will be created in three years and farmers will be able to get better prices for tproducts. Also the mandatory sourcing of at least 30% of their products from small and medscale enterprises will boost small scale industries as these chains will procure the same for tforeign outlets also. Customers will be benefitted by competitive prices and variety. It will ahelp to control food inflation. An example can be taken from China and Thailand where simprotests took place in the beginning but after allowing FDI in multi-brand retail these counthad been actually accelerated their economic growth. In India these stores will be allowed onlthe cities having a population of million plus thus only about 53 cities will be covered in inphase. Moreover the final decision to implement the policy will be left with the state governmeonly allowing them to either accept it or reject it. Hence we can say that if FDI in retail is allowewill boost the Indian economy by allowing inflow of foreign funds and investment. Also custom

will get access to quality products at competitive pric

But we must also keep in mind that may lead to large scale unemployed in unorganised resector. These stores may monopolize the prices. Hence opening up of the FDI retail seshould take place in a gradual phased manner so that small retailers interests are also tacare of. A possible policy may provide these small retailers with cheap credits, subsidies technical facilities to increase their efficiency and make them competitive. Government comake it mandatory for these stores to provide certain proportion of employment to rural yo

Appropriate legal frameworks can be implemented to prevent them from resorting to predapricing and monopolistic tendenc

Hence we can say that if FDI in retail is allowed with certain preconditions it will help boost


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Indian economy in the long run and will project a positive image of India regardingliberalisation policies. It will help growth of exports and employment generation. Therefore it mbe allowed and at the same time interests of small retailers be also protected.

The Truth vs Hype of FDI

There are always many facts of any realistic situation in todays world, especially in a country ours, where democracy is deemed above anything else, and where the right to freedomspeech and expression is used (and misused) over and over again. Unlike countries like Uwhere there are only two major political alliances (the Democratic and the Republicans), we ha

in India, apart from the two dominating alliances, a host of other fronts, all of them persisteengaged in scuffles over every single agenda, sometimes not even paying much attention to wtheir stands mean, to themselves and to the coun

Same has been the case with the issue of introduction of Foreign Direct Investment (F.D.I) inIndian retail market. The government has decided to open up the Indian retail market for gloplayers through F.D.I. in multi-brand retail with a 51% threshold (i.e. they can have only 5equity in the investment) and 100% ceiling in single-brand retail. There are several versions ofpossible outcome of this scenario floating in the different spheres of the country. But the diffeinterpretations ought to be backed with rational reaso

Broadly, there are two different views with regard to the decision of the Indian governmenallow F.D.I. in Indian retail market, one supporting it and the other opposed to it. The argument is put forward by the government itself, quite obviously supporting its resolution. Tgovernment claims that 10 million jobs will be created in the retail sector in the next 3 ye(though without floating any judicious explanation). It mandates a minimum investment of million U.S. dollars (approximately 500 crores rupees) for the foreign companies, with at least the capital to be invested in back-end infrastructures, including cold chains, refrigeratiotransportations, packing, sorting and storing. Now, this is no secret that India, amongst the odeveloped and developing nations of the world, falls way behind when it comes to infrastructuas has been recently pointed out by Ernst & Young that most of the multi-national compabacking out of India cite lack of proper infrastructures as their key concern). Hence, under th

circumstances, this step can be deemed most welcoming. Another very influential agenda poinout by the government is the nuisance of middlemanship. FDI in retail will ensure procuremenraw materials, especially of fruits and vegetables, directly from the farmers, thus filtering out roles of middlemen. The price that a farmer gets for a kilo of onions today is about half the pat which retailers and vendors sell the same stuff to the consumers. Another proposal buoythis idea is that a minimum of 30% of the value of manufactured items procured shouldsourced from small and medium Indian enterprises. The government backs its decision withost of other reasons, e.g., the presence of foreign retail majors will ensure supply chefficiency. It also alludes to examples of some other nations (China, Thailand etc.), though tfail to explain why the same system will be beneficial to our country as w

The second version includes the views of the opposition and those who consider this decisiobe inconsistent with the nations development. There are over 1.2 crores shops in Inemploying over 4 crores people, 95% of which are small shops run by self-employed people. opposition claims that the move will lead to large-scale job losses. Since there is no compulsto procure all the raw and manufactured materials from Indian sources only, it may leaddomestic agro-industries getting haywire. The move can also lead to market prices becontrolled by the foreign giants, further causing a slump of traditional Indian markets monopoly in the markets. The fact being pointed out by the opposition that any comparison bemade between India and someone like China is bogus, is crushingly genui

Both these versions of possible upshots are anything but restrained. And going by the history

our nations reaction to issues pertaining to the common-mans life, a lot of hype is being crea


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over the situation and the issue, by and large, is being blown out of proportions. These extremviews, being largely politically motivated, are far from being the truth. The truth, in fact, somewhere in the middle. Firstly, a sheer glance at the whole matter at hand gives anyone fair idea that this move is going to do more good than harm. Since the government is not direcanything against the Indian domestic enterprises, they can co-exist with the big guns of the woand a healthy competition is never a bad idea in todays world. They should, in fact, look forwto work in liaison with these companies. If the idea to introduce F.D.I means that the farmers going to get their worthy rewards and the masses are going to have access to better qualitiescommodities at better prices, then this step should be welcomed with open arms, even if means that a handful of people will be driven out of jobs. Because while choosing between evils, one should always go for the lesser

However, if the government is backing its decision purely on the basis of examples references of nations like China and U.S., then it should also keep in mind the grave differenbetween the highly-disciplined systems of theirs and the ever-worsening chaotic conditions of system.

The bottom line is that any step of any nature taken by the government is always going to bena particular section of the society and at the same time, is going to be harmful for another sectBut the million-dollar question is whether this decision has really been taken with a chaste heor is just an another example of greedy politics.

the truth vs hype of fdi

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