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FDI in retail will give much-needed boost to employment

FDI in retail will give much-needed boost to employment
India has been ranked the fourth most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm A T Kearney in its Global Retail Development Index (GRDI) 2011.

The Cabinet Committee has approved 51 per cent FDI in multi-brand retail, a decision that will allow global chains like Wal-Mart, Tesco and Carrefour to open outlets in in 53 major cities. The decision is a game-changer for the estimated $590 billion (Rs 29.50 lakh crore) retail market.

The Cabinet has also increased the FDI ceiling to 100 per cent from the present 51 per cent in single-brand retail, which will boost companies in food, lifestyle and sports business run stores. Owners of brands like Adidas, Gucci, Hermes, LVMH and Costa Coffee will get to have full ownership of business in India.

However, in the wake of fears among some political parties over the impact of the decision on farmers and kirana shops, tough riders have been imposed on the entry of multinational companies (MNCs). They should bring in a minimum investment of $100 million, of which half should be in back-end infrastructure like cold chains, processing and packaging. The retailers will have to source at least 30 per cent of manufactured and processed products from small-scale units.

Battling near double-digit inflation, the government has been trying to build a consensus on the issue, contending that the entry of MNCs in retail would contain inflation. Considering space constraint in big cities, stores can come up within 10 km of 53 cities with a population of at least 1 million.

Besides, agri-produce like fruits, vegetables, grains, pulses, poultry, fishery and meat products would have to be sold without branding, with the government and its agencies having the first right of procurement.

As much as 95 per cent of India’s retail market is driven by mom and pop (kirana) stores. The organised trade, with players like the Future group, Reliance and the Tatas have captured only a small cake in the big retail market.

Now, the Committee of Secretaries (CoS), has given its nod to 51 per cent FDI in multi-brand retail. This means Rs 450 crore in multi- brand retail but with stringent conditions like mandatory investment of at least 50 per cent in back-end infrastructure, minimum sales of 30 per cent from small traders and 30 per cent mandatory sourcing from small and medium enterprises.

Therefore, firstly,with 50 per cent investment in back-end infrastructure, it will not only improve the country’s infrastructure but generate employment. Second, a minimum sales of 30 per cent is to come from small traders, creating a very good opportunity for small traders and they will competitive. To this we can say, that the 30 per cent sales for small traders is good because it is going to create a great impact on the market. It will provide an incentive for better performance to maintain the position.

Third, 30 per cent mandatory sourcing from small and medium enterprises will give an opportunity to these enterprises to be competitive and improve their quality, because whoever will come to India will be very quality-conscious.

The question here arises how do domestic players react? The answer is FDI in the retail sector is a very good sign for consumers because they will get lots of variety at a prices, employment generation in the second largest populated country and increase of competition.

With companies like Wal-Mart or Tesco, the largest private employers of the world, at our doorsteps, there is a chance of more employment rather than job losses. According to statistics, at least 10 million jobs will be created in the next three years in the retail sector.

Foreign retail majors will ensure supply chain efficiencies as well, as they will include cold chains, refrigeration, transportation, packing, sorting and processing. This will lead to lower prices of products, benefiting consumers at large, minimum wastage of food resources due to the present poor infrastructure, lesser inflation rate due to efficiency in the supply chain and hence a step towards the speedy growth of the country.

Notwithstanding the above advantages, some will argue against FDI in multi-brand trade. There main arguments are:-
  • It will lead to closure of tens of thousands of mom-and-pop shops across the country and endanger livelihoods of 40 million people

  • It may bring down prices initially but fuel inflation once MNCs get a stronghold in the retail market

  • Farmers may be given remunerative prices initially but eventually they will be at the mercy of big retailers

  • Small and medium enterprises will become victims of predatory pricing policies of multinational retailers

  • It will disintegrate established supply chains by encouraging monopolies of global retailers
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