FDI in the Retail Sector
A lot has been discussed and worked on in the allowance of FDI in the retail sector, both in multi-brand and single brand. I guess that this would be a hot topic in the monsoon agenda, and parliamentarians will fight for the better India. Whatever he scene might be, it takes a small step towards a big change that I foresee in the coming 5-6 years. India will change!
Here is some food for thought for those who are opposing this big revolution:
- FDI with restrictions – At least 70-80% of the sourcing from local domestic market in a state, with different taxation levels for the state or UT, to allow the FDI in the state. The sourcing is done from the state only, and a part of the profits go to the development towards better infrastructure, technology, farming, irrigation methods, cold storage and support of middle men to relocate.
- Help in creating the back-end supply chain – With investments for the farmers in a state with an annual profit sharing basis for a lock in period of 4-5 years till the back end supply chain improves. The auditing is done by SCM specialists who monitor the progress on a half-yearly basis.
- The loss of confidence of the states that they might lose power if FDIs are introduced is an issue. All the political parties have to understand that if technology, science or inventions help the states, where multi-brand or single brand actually invest in the economy of the states, things can be at tandem. It is in their interest for a company to allow FDI and educate the masses to choose the best of them. Even in some countries like Brazil and Indonesia, the fruits and vegetables are sourced from the local market around 60-70%.
- Some things like operational costs, place of infrastructure development, land for allocation for new stores for multi-brand and single brand has to be the decision of the company and the state. The state should confirm that the investment should go back to the state.
- For multi-retailing, no frozen foods must be allowed to enter the gates of India through sourcing from outside India. This would change the pattern of food habits adding to the woes of the local farmers.
- How to include the middle men? Is it ideal to say that some of the investments go to the middle men after the farmers are benefitted along with them? I mean, the state allows the displaced middlemen with greater incentives to carry the food and vegetables or other non-perishable items from farm to the store. Can the companies investing in the infrastructure bear this initial cost of entry and educating middlemen to source from farmers with better incentives? Let us say, for every product selling worth 100 INR., 20 INR. goes to farmers, while 25 INR goes to the middlemen for sourcing the best products to the companies.
- The consumers will have more freedom to choose from their own. At the end of the day, not just middlemen, but farmers and consumers will also be benefitted. Let there be a balance of trade, such that some products are not allowed to enter multi-brand retail stores, which might actually intimate the local suppliers and local domestic markets.
- The waste of perishable items like food and vegetables will be reduced with the advancement of technology and innovation. Inflation will definitely be under control.
- At the micro-level, the assessment and decision would lie with the farmers’ choice to source it to the companies or middlemen or to mandis. The farmers SHOULD see this benefit.
- Capping the FDI initially to 30% for multi-brand and 49% for single brand should do the trick to allow the control of the management in the invested companies.
Trust me, if this happens across even for a handful of states, the impact on the economy will be huge. And for the best!