FDI in the Retail Sector
A lot has been discussed about the entry of FDI in the retail sector. Clearly there are some arguments for and against the theory. Let us try to explore them.
Argument 1: Foreign retail majors will ensure supply chain efficiencies. This will have a salutary impact on food inflation. Also food will not be wasted due to the introduction of adequate infrastructure.
Counter Argument 1: There is no hard and fast rule for the retail players to invest in infrastructure.
Argument 2: At least quite a million jobs will be created within three years of entry. Huge investments in the retail sector will have gainful opportunities in agro-processing, sorting, marketing, logistics, and front-end retail.
Counter Argument 2: This move will lead to large scale job losses, in terms of blue collar jobs. International supermarkets primarily dissolve the power of small retailers. Individual shops, mom and pop shops will be a loss making unit. India which is the hub of small retailers, will suffer a setback.
Argument 3: FDI in retail will eliminate the exploitive middlemen, and hence allow the farmers to have the benefits of pricing strategy.
Counter Argument 3: Fragmented market gives a wider range to the customers. Consolidated market will make consumer captive. Allowing foreign players will lead to consolidation. Also, there will be a loss of jobs for middlemen.
Argument 4: A strong legal framework can be made for anti-competitive practices, and predatory pricing. Policy will mandate sourcing from Indian micro and small industry. At least half the profit should go into infrastructure development.
Counter Argument 4: Even if the policies existed, there may not be any binding law for the retail segment around the dissipation of the profit for further infrastructure development.
Argument 5: In countries where FDI in Retail in 100%, there has been a tremendous growth in infrastructure and process, especially in some of the Asian countries like China, Thailand and Indonesia.
Counter Argument 5: China is primarily a manufacturing country, based on which manufacturing is exported. We cannot compare China and India.
Recommendation 1: There has to be an adequate inflow of funds from the Centre to nurture and grow this sector. The funds may be linked with proper knowledge dissipation of the various elements of this sector.
Recommendation 2: An adequate control has to be present for predatory pricing and anti-competition pricing, irrespective of the entry of the foreign entrants, to save guard against inflation and monopoly/ oligopoly.
Recommendation 3: Even if the stake is allowed, the entry should be allowed with a clear circumspection, and results should be weighted. No lawful binding must be made on the tenure of the foreign entrants, so that they can be controlled over the tenure.
Recommendation 4: In the food retail sector, creation of co-operatives and unions of small scale industries must be made to ensure the safeguards of the farmers producing crops. For that proper investment in the process like sorting, marketing, logistics, and front-end retail must be done.
In simple words, without allowing FDI into India, proper planning and execution is required to harvest the boon of this sector. In fact a percentage of the profit of middlemen and farmers including front-end retailers should go back as an infrastructure fund for the process, to ensure an internal growth engine for sector sustainability. National banks should also be open to micro-finance farmers adequately.