By Aashna Jain, National Law University, Jodhpur.
SEGMENT 2
This write-up seeks to examine the economic progress made by the country in the field of FDI in retail. This article seeks to examine the socio-economic constraints in introducing FDI in Retail in India. Also the impact that FDI has on the Indian Sub-continent particularly its markets will be carefully analyzed. Also this article gives some policy suggestions to promote healthy development of FDI in Retail in India.
It is one of the most heated topics of the date. This is because the BJP when acting as the opposition was against the FDI in retail from the very day the bill showcasing 51% FDI in multi brand retail and 100% in Single Brand retail, was passed. Even after winning the lections the Modi Government was not willing to take a U turn. It can be best explained from the following statement: – “We are clear that FDI will not be allowed in multi-brand retail trade in line with the position the BJP had articulated in its manifesto on the basis of which we won the elections,” she[1] said. She was addressing a press conference on the steps the Modi government took in its first 100 days.[2]
But now the Narendra Modi government is going hammer and tongs in preparing the best possible climate for United States President Barack Obama’s India visit in the last week of January so much so that one can even expect the unexpected – the BJP government seriously mulling over the possibility of permitting FDI in multi-brand retail in a staggered manner over phases.[3] At that time in September, 2014 Modi criticized the UPA government’s decision by saying that it would destroy the small shopkeepers. He was of the view that it would vehemently harm the domestic manufacturing sector, would create un-employment and would necessarily lead to a glut of cheap foreign goods in the Indian market.
But as is evident he realizes that in order to reach the 10 trillion GDP goal, nobody other than the USA can help India in achieving that.
But before one can jump onto any conclusions with the half-baked notions and ideas regarding GDP, lets examine what the analysts have to say in this regard.
Single Brand (100% currently) vs. Multi Brand (51% currently)
In single brand retail, products are sold under the same brand internationally and include only those products, which are identified during manufacturing. FDI in single-brand retail implies that a retail store with foreign investment can only sell one brand. Whereas on the other hand FDI in multi brand retail refers to selling multiple brand under one roof.
This article seeks to do a SWOT Analysis of the FDI Policy (single brand) in the Retail Sector and the likely effects of increasing the FDI in multi brand retail.
STRENGTHS:
- Job Creation is the biggest strength of this policy. A no. of people will be employed in the retail stores opened up by the big companies.
- Another advantage/ strength is the accumulation of the latest technology in the Indian sub-continent.
- Also the Indian managers will be exposed to the best management practices in vogue around the world. This will be beneficial for the stores in India. They can imitate the same techniques and conditions on how to deal with the workers.
- The Indian government had commissioned Indian Council for Research on International Economic Relations (ICRIER) to perform a study on the effect of organized retailing practices on its unorganized counterpart. ICRIER submitted the report during 2008. The study hinted at the advantages that the growth of organized retail will have for various participants like the consumers, manufacturers, and farmers. The government decided on the basis of the results in other countries and the ICRIER study that this decision would result in a greater influx of FDI in both back and front-end infrastructure. It was expected that the agricultural sector would become more efficient and be in a better position to use technology.[4]
- As we all know that competition leads to better services. In a bid to out do each other the foreign brands and the Indian Retailers will provide the best. All this will be provided at a low cost and that will in turn benefit the consumers. This will improve the investment, production and consumption cycles.
WEAKNESSES:
- There will be very less capital investment in the retail sector.
- This will cater mainly to the high-end families who are living in the metro cities. There will be lop-sided growth. The rural areas will not be able to seek benefits from these retail stores set-up in the cities.
- Experts say that while analyzing the positives and drawbacks of FDI in retail, both the government and the opposition did not refer to the Parliament Committee report where its effects had been studied in great detail. The committee had taken into cognizance many witnesses, NGOs, individuals, and trade associations to come up with the said report. The Committee visited various corners of India and also went through reports and gathered knowledge about the experience of similar decisions in other countries. It also enquired from several government departments regarding the matter.[5]
- Also the recommendations of the ICRIER were based on the interviews conducted only on 300 people in the country of 1.2 billion strong. The credibility of the committee’s findings should be under scrutiny.
- Leading economic experts from outside India have also posed the same question. They have also pointed at the labor practices of organizations such as Wal-Mart. Most of these are not exactly healthy for workers. This has also led them to ask if such processes were really required in India.
OPPORTUNITIES:
- Global retail takes India as a key market. It is rated as the fifth most attractive market in the world. The food sector is the key in driving the growth. It is expected that the growth in the Retail sector will be stronger than the growth in the GDP of the country if the multi brand FDI is increased from 51%.
- It will lead to foreign inflows of capital.[6]
- It will increase the export capacity of the country.
THREATS[7]: –
- People those who oppose to the FDI in multi – brand retail, feel that FDI will pose some threats before the unorganized retail sector and will adversely impact the small retailers, farmers and consumers and will give boost to monopolies of large multi-national retailers, which may adversely affect the pricing and supply of the goods.
- It would also lead to unfair competition and ultimately result in large scale exist of domestic retailers, especially the small family managed outlets, leading to large scale displacement of persons employed in the retail sector.
- Another concern is that the Indian retail sector, particularly organized retail, is still under-developed and in a nascent stage and that, therefore, it is important that the retail sector is allowed to grow and consolidate first, before opening this sector to foreign investors.
CONCLUSION:
India should attract the foreign capital once we have a pool of talented resources and when India is able to tackle the pressure of the high rate of competition. Since, currently there is no efficacy of the public procurement and PDS set-up and the bill on food subsidies is rising. In spite of such heavy subsidies, overall food based inflation has been a matter of great concern. The absence of a ‘farm-to-fork’ retail supply system has led to the ultimate customers paying a premium for shortages and a charge for wastages. First the government should ensure the up-gradation of the PDS System and then think of inviting investment from the rest of the world.[8]
FDI contains inflation by reducing wastage of farm output as 30% to 40% of the produce does not reach the end-consumer. “In India, there is an opportunity to work all the way up to farmers in the back-end chain. Part of inflation is due to the fact that produces do not reach the end-consumer.[9] Also the standard of living will increase tremendously if more and more investment is encouraged in the Indian Market. This might prove to be a blessing in disguise for the economy.
Note: This is the second article in our series on FDI in India. Here’s the link for the first article, for your perusal: https://www.lexquest.in/foreign-direct-investment-india/
[1] Industry Minister Nirmala Sitharaman
[2]“India to dis-allow FDI in multi-brand retail: Nirmala”, 8 September, 2014, The Hindu
[3] “Modi to tell Obama that India is a game for FDI in retail in a staggered way, FirstPost, Rajeev Sharma, 30 December, 2014
[4] Business Maps of India, FDI in Retail
[5] Supra note 3
[6] Dr. Manish Khare, “ Foreign Direct Investment in Indian Retail Sector – A SWOT Analysis, AISECT University Journal, Vol. 2, (Sep 2013)
[7] Abhisek Saha Roy, FDI in Indian Retail Sector: Opportunities and Challenges, Academia.edu
[8] “Foreign Direct Investment in Indian Retail – An Analysis”, Legally India, Pulkit Aggarwal, Esha Tyagi, 24 November, 2011
[9] Supra note 5