Retail in India & FDI

Over the past fortnight, the big news has been allowing FDI in retail trade in India. While Government has been surprisingly steady-fast in it’s decision of allowing 51% FDI in multi-brand retail, opposition & the trade itself seems to be against it. Each side has it’s own reasons to support & oppose the decision.

In my opinion, allowing multinational companies in retail is wrong. It will kill the local industry over time. Nothing stops the MNCs from undercutting the local retailers and once they have gained dominance they will keep prices high and be able to profit from their dominance, this has been seen in all the countries which have allowed big retailers.

The West is interested in India opening up retail sector since it sees profit in it, it is not interested in building the industry neither does West have any concern for Indian consumers.Whatever infrastructure that the retailers will set-up it will be for their own use, they will not be interested in building public infrastructure.

Will retailers be ok with the concept of retaining & reinvesting profits from India within India? I bet not.

Everybody is talking about the benefits of FDI in retailing:
– More jobs
– Better prices for Farmers & small Producers
– Lower Prices for public

I suggest everyone who thinks on the above lines must read this article in Business Line (click here) It gives a good perspective of what will most probably happen.

The same author has written a series on impact of allowing Foreign retailers in India.
Why the Indian model is superior (June 17, 2011, Business Line)
Recipe for unemployment (July 5, 2011, Business Line)
Reality belies the hype (July 6, 2011, Business Line)
Remember the Salt Tax, anyone? (August 4, 2011, Business Line)
How the world burnt its fingers (August 25, 2011, Business Line)

My opinion is instead of allowing foreign retailers to set-shop in India citing improved supply-chain infrastructure & better prices – Government could drive towards improving the local industry – make it efficient and competitive that retailers will then not oppose foreign players setting shop here. Government should encourage investment in improving the supply-chain and also compliance by retailers to the tax regime (sales tax, VAT, GST). In the long run that would benefit the nation more than allowing foreigners to just mint us.
This Government seems to be supporting the profiteers and ignoring the welfare of the nation.
Arguments about the so-called benefits of liberalisation since 1991 as hollow – probably today we have more poor than every before. Government has still not learn to balance between public welfare and private profit motive.

More to read – Amul’s MD’s views – click here