Thursday, July 19, 2012

Why FDI in retail will work

Evidently, there is no national consensus on allowing FDI in retail. Advocates tout it as the much-needed major policy push that could arrest the economic downturn, bring in not only foreign funds but advanced technology and expertise, create infrastructure, offer better prices to farmers, generate ancillary industries and create millions of jobs. 

However, skeptics present a doomsday scenario: it will wipe out small farmers and traders, result in job losses and open the floodgates for cheap goods from countries like China, adversely impacting Indian industry. 

While both arguments have some validity, the two sides err on the side of extremes. FDI in retail is not an unmitigated disaster as projected by some, nor a magic wand leading to instant economic growth. If allowed with professional circumspection and safeguards and viewed dispassionately, it is in the country's national interest to allow FDI in retail. 

Opening up the telecom sector to foreign investment worked by bringing a communication revolution that embraces everyone. Similarly, foreign investment in the automobile industry ended the long wait for outdated scooters and cars and led to leading global companies vying to sell the latest models in India. 

When Pizza Hut, Domino's, McDonald's, Wimpy, Burger King, KFC and other such international brands were allowed, there were orchestrated demonstration in many cities; they were painted as anti-people and anti-Indian enterprises. We were told Haldirams, Bikanerwalas, Nirulas, Nathus and their ilk will vanish. 

All these Indian chains have multiplied their outlets, diversified their production line, upgraded their packing and presentation, and are doing roaring business. In fact, some of the largest MNCs like McDonald's, Pizza Hutand Domino's have been forced to Indianise their offerings. Where else in the world would you find a McDonald burger with paneer and potato patties and coriander sauce? 

While many starve, millions of tonnes of grain rot for want of adequate storage facilities. Ask how farmers in Punjab feel when their produce is not picked up and lies unsold. Can they negotiate higher prices? When the mercury rises, fruit don't last more than two days.

TV channels often show how adulterated ghee, milk made out of detergent, mangoes and papayas ripened with masala, vegetables and fruit injected with dangerous concoctions are flooding the market. Who is to blame? FDI in retail? 

No one should underestimate the ingenuity of ordinary hawkers and small grocery owners. They know how to reach out to their potential customers. Today, in many areas of Delhi, vegetable vendors present their carts, laden with fresh stuff straight from the farm, as early as 6:00 am. 

Many joggers and walkers find it convenient to pick up their daily requirement of vegetables from these vendors. In the evening, they move near temples where devotees find it a blessing to shop for fruit and vegetables at the temple gates. 

Small grocery shops realise the value of home delivery, small stores also reduce a rupee or two on most items. This demand-and-supply relationship will remain unchanged notwithstanding the entry of bigwigs like Tesco, Carrefour and Wal-Mart. 

Even without FDI in retail, more than half of electronic and electrical items, machine tools, building hardware, bathroom fittings and sanitaryware, lights and chandeliers sold in India are made in China.

Why blame the US for getting its flags from China? Come Diwali, and millions of porcelain Lakshmi and Ganesh idols made in China flood local markets. You can't wish Chinese products away; there is no option but to compete with them on price and quality. 

The purchasing power of different sections of Indian society is very elastic. Many relish lunch delivered in a tiffin box for Rs 50 while a buffet lunch costs around Rs 5,000 in most five-star hotels.

So, mega stores of FDI in retail can also coexist with small traders, grocery shops and corner vendors; they will attract customers from different sections, as has been the case in the restaurant business. Those raising the bogey against FDI in retail are the same persons who opposed FDI in the telecom, automobile and restaurant sectors. 

The government can ensure benefits for Indian industry by making outsourcing of 35% requirements of megastores from India itself.

They can also be asked to undertake R&D for better and higher-yielding seeds, build connecting roads, set up a chain of warehouses, cold storages, food processing plants and create green belts in the vicinity of stores as also schools, hospitals, sports and recreational facilities for their employees. Anyone claiming that FDI in retail will not create jobs is being dishonest. 

Source: The Economic Times


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