Implications of FDI in retail
- Hueiyen Lanpao Editorial :: December 09 2011 -
The decision of the UPA government to to allow 51 per cent Foreign Direct Investment (FDI) in multi brand retail has been akin to poking a beehive and eventually getting swarmed by the bees of opposition to the decision.
It's not just the opposition parties which the government has had contend with, even its allies, particularly the Trinamool Congress, is opposing the move tooth and nail.
Initially, the government, especially the Prime Minister Dr Manmohan Singh was firm on sticking with the cabinet decision, but was forced to put on hold its implementation as we write this piece.
The relentless pressure from the BJP, the left parties and the Trinamool Congress inside the Parliament as also the prospect of an adjournment motion in both Houses of Parliament, and which, if carried, would have made the continuance of the UPA government untenable, brought about this rethinking.
The opposition to FDI in multi-brand retail is understandable, for, its impact will be felt far and wide in the country affecting the lives of millions who are employed in this sector.
India is a huge market and many of the leading multinational companies would see it as a boon if it drops into their lap.
For most of them, foreign sales make up major share of their earning, as for instance, in the year 2007, it was 74 per cent for Aholds of Netherlands, 52 per cent for Carreflour of France, 20 per cent for Walmart of USA. Given their huge financial strength and expertise, their entry in the Indian market would have a devastating impact on the Indian retailers.
Many of the small and medium retailers would find it hard to sustain the competition and keep themselves afloat and many among them will lose the only means of livelihood.
Even the bigger local retail firms would come under tremendous pressure to keep up with these multinational companies which can dig deep into their pockets to edge out competition.
The competition will come not just in terms of retail outlets but in the whole chain leading up to the retail outlets. These retail giants will start procuring directly from the producers, set up their own chain of warehouse and distribution system bypassing the traditional supply chain in operation, thereby all displacing many of those, especially the smaller middlemen who form part of this supply chain.
Examples of other countries which have allowed FDI in retail and where the local retail sector have successfully withstood the competition, and have even done a very good job of it, are often cited by proponents of FDI in retail.
China allowed 26 per cent FDI in retail in 1992 but it was only in 12 years later that 51 per cent was allowed, while Indian government is proposing allowing 51 per cent FDI straight away.
This long intervening period, many expert felt, worked to the advantage of local retail sector as it quickly learned from the MNCs and also adapted to the changed scenario.
Another difference being that while in China organized retail sector made up 20 per cent, in India it makes up a mere 5 per cent with the rest falls under the highly vulnerable unorganized sector.
Though, Manipur is not likely to be affected immediately even if 51 percent ownership is allowed in retail since the initial proposal is for its introduction in the metros and bigger cities, the state government should be alert to its implications.
The West Bengal Chief Minister Mamata Benerjee is categorical in not allowing FDI in retail in West Bengal as lakhs of people right from the street vendors to those involved in small and medium retail business will be badly hit.
The state government, political parties should also make known their opposition to this move of the centre, for, if in case 51 per cent ownership is allowed in retail and if this expands all over the country and eventually reaches the state, it will have a devastating effect, even the livelihood of our women vegetable and others vendors will come under threat.
* Comments posted by users in this discussion thread and other parts of this site are opinions of the individuals posting them (whose user ID is displayed alongside) and not the views of e-pao.net. We strongly recommend that users exercise responsibility, sensitivity and caution over language while writing your opinions which will be seen and read by other users. Please read a complete Guideline on using comments on this website.