FDI in Retail : A Boon or a Curse?

FDI in Retail5th of December, 2012 was a history making day for India. The country witnessed one of the biggest debates in the lower house, Lok Sabha which is known as the House of People; a debate which is significant enough from the point of view of India’s economic development. On one hand, where the ruling party placed its ideas and arguments in favour of FDI in retail, the opposition on the other hand made every possible argument to bring down this reform.

The debate finally took face of a voting wherein 254 members voted in favour of the government whereas 224 voted against the reform. Thus the government were in majority to pass this reform and bring it into action. So what is FDI exactly and what is it that is persuading the opposition to go against it.

What is FDI?FDI is Foreign Direct Investment wherein a company from some country invests in a company in another country or expands its branches in another country. It provides opportunities to the foreign companies to invest or make expansion plans in other countries where it finds a good consumer base and better incentives to expand its own market.

If we take a look at history, US have been the largest recipient of FDI till date. Accompanying US are many other European nations that have seen economic growth and development through FDI. This is about the developed countries. Amongst the developing countries, progress of China through FDI has been remarkable. So what is it that is preventing the inflow of foreign investments in India and what is it that the opposition passed a motion against this reform for.

If we analyze the current statistics, we will understand the following facts about India as an emerging market:

  • India has a very promising consumer base with ever-increasing demand due to the increasing population
  • The consumer base is divided into different classes right from the upper, upper middle, lower middle and the lower class
  • Whereas farmers are concerned, the farmer is compelled to sell his crop or the commodities at whatever price he gets. This is because of the perish-ability of goods. Hence, to avoid decay of the commodity, he has to face the exploitation of the middleman who pays an extremely low price for the goods and sells the same at a higher price in the market.

Keeping in mind the above points, let us understand the advantages of FDI for a developing country like India:

  • With the ever-increasing demand from the consumer class, the foreign retailers find India as a promising market from the point of view of their own expandability and profitability.
  • With more and more foreign retailers investing in, the competition is likely to increase which will in turn prove profitable to the consumer class as this competition will bring down prices substantially thus affecting the inflation figures.
  • Also taking care of the range of consumers from upper class till the lower class, more and more variety of brands would be introduced thus providing the consumers with feasible options for themselves.
  • Whereas farmers are concerned, the new FDI policy mentions ruling out the involvement of the middleman and would promote retailers directly buying fruits and vegetables from the farmers, thus providing better prices to the farmers, consumers and profitable business for the retailers too.

Face of FDI in India

With the above points in focus, there seems to be no reason that the opposition passed a motion against this reform. Yet the reasons that they placed were something like:

  • The business of the kiranas and the local stores is likely to be killed by the competition
  • What about the possibility that the foreign retailers after gaining monopoly will not increase the prices, thus exploiting the consumers?
  • Examples of The East India Company who entered India with an idea of trade and took over the rulership should not be neglected
With the points placed by the opposition and also with the approval of taking ahead this reform after the voting, thousands of small retailers in India went on a strike against this motion. I believe that the main idea of politics or a politician should be for the betterment and progress of the country as well as the people of the country and not for own material benefits. I do not say that the points raised by the opposition are invalid and should not be considered.

These are definitely some points of concern. But at the end, we must understand that any step towards the development of the nation must be taken only after considering the various aspects of that proposal.

  • Out of the total source of raw materials required for the commodities, about 30% should be from the national industries
  • Every foreign retailer willing to enter the Indian market will have to go through government approval
  • FDI will be allowed in only 53 cities with a population of over 1 Mn against the total of around 8000 towns/cities in India
  • With foreign retailers entering the market, there will be more requirement of manpower, thus generating more employment for the local-ites and it will even boost the infrastructure of the country with new and advanced construction of retail stores.

The points mentioned above are some of the many clauses placed in the reform for allowing FDI in retail in India. Analyzing these clauses makes it clear that the reform is in no way killing the interests of the local kiranas, retailers or the consumers.

Thus, I would say that with each clause taken into consideration, one can sure enough that FDI in retail is truly a win-win situation for India, if the policies and guidelines mentioned are properly monitored and followed. The kiranas and the foreign retailers can always co-exist, especially considering the wide range of consumer base divided into different classes and also considering the purchasing habits of the different groups of people here.

For the opposition, I would say that it is necessary for them to welcome this move with a positive gesture. As a politician it becomes their duty to understand the things from every perspective and work along with the government for what is right. Also it is the duty of every citizen of any nation that they understand any idea or a reform in its totality and then take any step.

Disadvantages are always there in every move that one makes. But with conscious efforts and the right clauses and also with the timely monitoring of those clauses, things can be handled efficiently eventually leading to the overall development in the interest of every individual involved in the process cycle. One can just wait and watch what direction this entire wave takes in near future, but today it is surely a move that it worth making.

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1 comment
kajal says January 24, 2013

nice points

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