Who will benefit from FDI in India?
With the government having allowed 51% foreign direct investment (FDI) in multi-brand retail, the economy has opened up to global players in retail. One name in particular has hit the headlines — Walmart. The American retailing giant is the third largest public corporation in the world
According to the Fortune Global 500 list for 2012, and it has become the poster boy for anti-FDI protests and increasing opposition rhetoric.Economists are divided on the effect that Walmart and other retail chains will have on the domestic economy. The prime minister claims this step will increase prices paid to farmers, reduce prices for customers, reduce agricultural wastage and create thousands of jobs. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, said the measure is not a threat to small retailers and it will create efficiency in supply chain infrastructure. Wastage will fall, leading to lower prices of primary commodities. In India, 30% of fruits and vegetables, and 5-7% of grains are wasted between harvest and consumption.
Senior BJP leader and former HRD minister Dr MM Joshi dared Prime Minister Dr Manmohan Singh to have a debate with him on the issue of FDI in retail sector while saying the country needed to adopt a new economic policy for itself in the backdrop of failure of liberalization policy.
“Let the PM have a debate with me on FDI in retail sector or reform. The studies world over have established that such FDI has not benefited farmers, consumers or the country which has allowed it. It has only benefited the giant companies running the show”, said Joshi talking to the Hindustan Times during his visit to the city on Sunday.
“As many as 40 percent of vegetables are rotting as there is no backend. Multi-brand retail is a model that will work and the advantages outweigh the risks. Advantages of a backend and cold-chains being formed, sourcing, quality standardisation, etc are going to mainly help our agricultural sector,” Kamal Nath, Union Urban Development and Poverty Alleviation Minister said.
He was addressing the All-India management Association summit. Stating that the worries of mom-n-pop stores being gobbled up by the big players were unfounded, Nath, who in 2009 had pushed for retail FDI, said, out of all the cities we had only 21 cities that were eligible for the model.
“I think small and medium retail can live with large retail. I don’t see people abandoning their local shops and drive 15-20 miles to a large retail outlet unless he is getting some real benefit out of that,” he said.
RJD on Sunday said FDI in retail will benefit the farmers but the small traders be "hit badly".
"The FDI in multi-brand retail is bound to benefit the farmers who will get a fair price by selling their produces directly to the retail companies," RJD national spokesperson Ramkripal Yadav and Ex-MP Vijay Krishna told reporters in Patna.
The middlemen in marketing chain of food grains will definitely be eliminated after multi-brand retailers set up their outlets much to the benefit of the farmers, they said.
With the coming of 'organised' multi-brand retail - whether through FDI or indigenous - can the kirana store owner create an effective response so that he competes successfully to retain his share of the consumer's growing shopping basket? And second, will he want to make the change?
"The FDI in multi-brand retail will, however, hit badly to the crores of retail shopkeepers and vendors," RJD leaders said.
The rules say that half the foreign investment should be used to build supply-chain infrastructure, completed within three years. This could be a big benefit, given that Indian retail chains have so far lacked the capital and incentive to invest in supply chains. An efficient back-end set-up could lower costs for the entire set of retailers in a particular business. Given that hypermarket business operates on low margins, any cost savings will help plump up margins.
But there are roadblocks to this — restrictions in movement of farm produce between States, taxes such as octroi, and the sheer size and fragmentation of the agricultural market. Geographical limitations also throw into question effectiveness of the supply chain. Restructuring to create entities to work in the current framework would need a lot of thought, but managing an efficient supply chain, considering that only nine States have given approval, will pose a big challenge, according to Rachna Nath.
- Sri Lanka would take on West Indies in the Final T20 match of the T20 World Cup tournament. The match will be hosted at Colombo....
- For the World T20 2012, it is finally ‘D’ Day. One team will be crowned the champions, while the other will have to make do with a...