Tag: FDI

Constitution and morality Parliamentary Contradictions Over FDI

Posted on | by Amba Charan Vashishtha | Leave a Comment on Constitution and morality Parliamentary Contradictions Over FDI

By AmbaCharanVashishth

THE illustrious framers of our Constitution were men of character, morality, intelligence and farsightedness in their own right. Their singular consideration was the interest and future of the nation, and nothing else. Although more than 80 per cent ~ maybe even more ~ of the members of the Constituent Assembly belonged to the Congress, yet they never even for a while thought about the interests of their party. The same can be said of the leaders of other parties and non-political celebrities.

But things are totally different today. Whichever party may be ruling at the Centre or in the States, the uppermost priority and objective of the political rulers are centred on promoting and protecting the interests of the party and catering to the sectoral interests of their constituency of voters who provided them the edge over the opponents to win. The electoral benefit any programme and policy may fetch to the party in power acts as an accelerator. In fact, ‘opposition for opposition’s sake’ is the guiding star of every political party, both ruling and the Opposition. The latter opposes a government policy only because it is likely to swell the vote- bank of the ruling party which, in turn, is not willing to entertain any suggestion from the Opposition even if it is in the interests of the people or the nation. The party in power wants to prevent the Opposition from deriving any political and electoral mileage in the event of acceptance of a policy emanating from the other side.

Every political party has a right ~ constitutional and moral ~ to its stand on any issue and to vote accordingly. At the same time, the stand and voting on any issue cannot be contrary to each other. The two cannot be separated, from each other. Otherwise, it turns out to be hypocrisy in all its manifestations.

In its winter session in December 2012 the LokSabha presented a unique case-study. While participating in an Opposition motion calling for the withdrawal of the government’s decision to allow 51 per cent Foreign Direct Investment (FDI) in the retail trade, certain parties adopted a stand that was totally at variance with their stated position on the issue. This was reflected in the voting, abstention and the walkout. When it came to voting, some of them supported the government’s decision and others devised a strategy to indirectly bail the government out on an issue they otherwise opposed. Some staged the drama of a walkout in protest against the reply and explanation of the minister concerned.

They were obviously trying to fool the people with their strident public opposition to FDI; simultaneously they were helping the government in an indirect manner to achieve its objective. Their action was in stark contrast to what they had said in the House.

The conduct of these legislators may not be against the word of law and the Constitution, but it certainly destroys the spirit of both. One doesn’t know whether it pricked their collective conscience. Their attitude places the Constitution in direct conflict with the tenets of ethics and morality.

In the discussion in the LokSabha with an effective strength of 544 members, a total of 261 MPs representing various political parties were with the Opposition, appealing to the government to withdraw the decision to introduce FDI in the retail sector.
Some of these groups belonged to parties which were either part of the United Progressive Alliance (UPA) or were supporting it from the outside. But when the Opposition motion was put to vote, only 218 stood for it while 253 stood by the government. Some political groups (43 MPs), which had opposed the move tooth and nail in the House, tactically preferred to stage a walkout.

The political groups opposing the government were actually playing politics which has, over the past 65 years, come to be acknowledged as the deft art of fooling the people. On the one hand they were vociferously telling the people that they were against the move but, on the other, they staged a walkout to facilitate the Bill being passed to save the face of the government.

The Constitution does stipulate a voting pattern on a confidence or no-confidence motion; in the case of a Constitution Amendment Bill, there is a clause of two-third of the members present in the House and voting. Those who had framed the Constitution could not visualize a situation where politics would stoop so low that this provision of “those present in the House and voting” would be exploited to vote for a government or vote it out by taking recourse to a walkout or not voting in violation of their own stand spelt out in the House. This contradictory conduct makes a mockery of both the spirit of the Constitution and the sanctity of the words and views expressed in the House.

A walkout is a mark of protest and a virtual vote against the issue under debate and voting in the House. On moral grounds, it amounts to a vote against. Would it be constitutionally and morally right if a government adopts a strategy to create conditions provoking the Opposition to walk out in protest and, later, in the absence of the Opposition, getting the approval of the House with a near unanimity of those “present and voting” on certain controversial issues?

The Constitution may not have stipulated as much in so many words; yet it would be equally wrong to construe the absence as putting its seal of approval on the duality of the conduct in opposition to the words and opinion expressed on any issue in the House.

The writer is a Delhi-based political analyst and commentator
(Courtesy: The Statesman)

FDI In Indian Retail Sector

Posted on | by Manas Nanda | Leave a Comment on FDI In Indian Retail Sector

 1. SUMMARY

The white paper highlights several sustainable development issues, in addition to the economic aspects, arising out of a possible FDI in Indian retail sector. Public policy regarding the retail sector is crucial because it is the second employment provider in the economy after agriculture. Various purported benefits of FDI in retail and large scale organised retail have been contradicted by evidence found in Western countries. Employment generation from entry of foreign retailers seem to be largely exaggerated. On the other hand, a reduction in revenue and profits of small retailers is more likely to happen if not a loss of employment. Road infrastructure which is prerequisite for development of efficient supply-chain system is inadequate and will be big constraint even when foreign retailers invest in developing an integrated supply chain. Inadequate grid-connections would compel cold-storage providers to consume diesel which would increase green-house emissions and also drain the state exchequer’s money in the form of subsidies. Without adequate roads and grid connections, the country is hardly prepared for an inflow of FDI.

Contrary to common perception, supermarkets are found to be responsible for huge amount of food wastages due to their obsession with cosmetic appearance of food products. They are also responsible for increasing packaging waste which poses serious solid-waste management challenges to municipal authorities in cities. Farmers profits also tend to suffer when major retailers establish monopoly-like position in the market. Farmers are subjected to increased financial risks and unexpected costs due to several unfair practices of supermarkets. Supermarket’s criteria for rejecting products from suppliers on grounds of appearance of produce, promotes chemical-intensive farming among farmers which has adverse environmental and health effects in addition to being financially unattractive. Also, monoculture plantations encouraged by supermarkets cause a loss in bio-diversity, deplete fertility of soil and make crops more prone to pest attack.

Successful strategies to overhaul the agriculture system should have a bottom-up approach which engages people at grass-roots, rather than a top-down approach. In this context the idea of forming farmers’ cooperative societies is crucial. One possible way to reduce storage loss as well as increase farm income is to have on-farm micro food-processing facilities at cooperative level by the use of simple technologies such as solar dryers at community. The cooperative business model of Amul, for an extremely perishable item such as milk, presents a perfect case that vindicates the bottom-up approach. Similar cooperative models for farm produce such as fruits and vegetables can also be evolved. In case the government decides to go ahead with the proposed FDI, it should follow a more calibrated approach with social safeguards to protect the interests of small retailers.

 

 

2. INTRODUCTION

The recent political fiasco of the government opening up doors to India’s retail sector for foreign investors only to slam it back in a space of few days , has hogged considerable attention in both national and international media. Several arguments have been presented by experts in both camps ─ the pro-FDI and anti-FDI. However, much of the discussion has hovered around the economic aspects of FDI in the retail segment. In contrast this short note, wherever relevant, tries to highlight some of the issues in sustainable development resulting from FDI in retail and more generally from wide-spread organised retail.

3. CURRENT SCENARIO

3.1 Overview of the Retail Sector in India

The retail sector contributes to around 8 percent of India’s GDP. It is the second largest provider of employment after agriculture, employing close to 40 million people. An important feature that distinguishes the Indian retail sector from those in the developed countries is the highly unorganised nature of the business and the presence of extremely small retailers. It is estimated that India has 15 million retail outlets which translates to density of 1 for 80 persons, the highest in the world. Only 4 percent of these outlets have an area of more than 500 sq. feet. Around 95 percent of the total retail trade is done through these marginal retailers; the remaining 5 percent can be attributed to the organised segment which has grown in the last decade or so.

 

3.2 Current FDI Rules in Indian Retail:

• Currently, FDI in Multi-Brand retailing is not permitted in India.

• FDI in Single-Brand retailing up to 51 percent is permitted with prior government approval.

• FDI in ‘cash and carry’ wholesale trading is permitted up to 100 percent under the automatic route.

• FDI in storage and warehousing services, including warehousing of agricultural products with refrigeration (cold storage) is permitted up to 100 percent under the automatic route.

4. BENEFITS OF FDI IN RETAIL –CLAIMS VERSUS EVIDENCE

 

4.1 Large-Scale Employment Generation

Proponents of FDI in retail have declared that there will be large-scale job creation in the economy. Union Minister for Commerce and Industry Anand Sharma went one step further by quoting a figure of 10 million as the number of new jobs to be created, with bulk of that supposedly coming from the logistics sector. However, experts have expressed that this figure appears highly exaggerated given the western retailers’ preference for automation and mechanisation. For instance, the Walmart, whose global turnover is close to size of India’s entire retail industry, employs only 2.1 million people. Assuming that the Walmart and other retailer giants will extend their highly profitable model in the Indian retail sector as well, it is highly unlikely that 10 million jobs will be created. However, it is rational to think that considerable amount of jobs is likely to be created.

On the other hand, there is a possibility of loss of employment for several small retailers once foreign retailers establish themselves in the market, as seen in developed nations. Endowed with deep pockets, supermarkets resort to predatory pricing, often selling at below cost, to wipe out competition. A study by the British Retail Planning Forum found that every time a large supermarket opens, an average 276 jobs are lost .

In the Indian context, a study conducted by the Indian Council for Research on International Economic Relations in 2008 observed that unorganised retailers operating in and around organised retailers have witnessed a drop in business turnover and profits after the entry of large organised retailers . However, the study found no evidence of closure of unorganised players due to competition from organised players. The entry of foreign players into the Indian retail market may or may not result in huge loss of jobs, but income reduction of marginal retailers and intermediaries is highly likely.

4.2 Efficient Supply Chain Systems

The Government believes that FDI in retail is the silver bullet solution to all issues regarding the inefficient supply chain system in India. This belief rests on the premise that a component of the capital inflow into the retail sector will go into developing an extremely efficient and organised supply and logistic system that will take care of collection, storage and transportation of food produce, seamlessly. What the government seems to neglect is that the backbone of any efficient supply chain is the infrastructure for transportation, such as roads and rails. The government cannot expect the Walmarts and the Tescos to build good roads, without which the supply systems cannot be optimised. This is one of the constraints that Indian retail players are already struggling with. Globally, logistics account for around five percent of total cost retail players incur, while it is as high as ten percent in India, thus making a dent in its attractiveness. Before the government ushers in FDI, it should make sure that the supply-chain industry is ‘investment-ready’; however, with the current state of road infrastructure, it is far from being ready.

Another aspect of inadequate support structure for FDI in retail is the country’s long-time nemesis – power crunch. An efficient supply chain system would include end-to-end cold chain for storage and transportation of fresh produce. Warehouses with cold storage facilities need to be set up throughout rural India, at places accessible from the farms. Cold storage facilities are energy-intensive, especially in tropical countries such as India where summer temperatures can go up to 50 degree Celsius. A large chunk of villages still do not have access to electricity while many of those villages that do have electrification, either have it only on paper or have erratic supply. Unless the government performs a miracle overnight, it is expected that warehouses will be run on diesel generators. Similarly, the transportation system enabled with refrigeration facilities, would also consume additional fossil fuel. There are multiple problems with the increased consumption of fossil fuel.

First, the cost of unit power required for storage and transportation of produce will be much higher. Indian players in the cold-storage segment have already expressed the high cost of power as a significant challenge to growth. Given the increased cost, retailers would try to recover their margin from elsewhere, probably from the weakest link in the chain- the poor, hapless farmers.

Secondly, given the dependence on diesel, it would further increase the oil import bill of the country, widening the trade deficit. Assuming subsidies continue to be provided on diesel, it would result in transfer of tax-payers money to retailers.

Thirdly, diesel is a heavily polluting fuel with a high concentration of suspended particulate matter. Increased consumption of diesel will open up another front for widespread pollution, environmental damage and climate change. This would be quite a damaging development, especially at a time when policy makers worldwide are having protracted negotiations to broker a climate deal that seeks to put greater responsibility on countries such as India and China to reduce emissions.

A case in point is the use of diesel by telecom companies in India in order to power mobile towers. Faced with frequent power outages and inadequacies of electricity grid to meet their energy requirements, telecom companies have resorted to using diesel in a big way. Currently 60 percent of their energy demands are met through the use of diesel while power grids contribute to the remaining 40 percent. This has been a cause for massive environmental pollution especially in the country-side, resulting in an emission of 6 million tonnes of CO2 annually. Like all environmental hazards, this one also extracts a disproportionately higher cost from the economically backward segment of the society. Several Members of Parliament have recently highlighted the issue to the honourable Prime Minister but no action has been taken so far. Apart from the environmental repercussions, the issue has an economic aspect as well. Subsidies on petroleum products are provided by the government to support the middle and lower income groups in meeting their energy needs. However, in the absence of differential pricing, all consumers whether industrial or individual, are charged the same subsidised price. Telecom sector companies in India, the second largest consumer of diesel, have unfairly exploited the provision of this subsidy. According to environmental watchdog Greenpeace, telecom companies account for an estimated annual loss of over INR 2,600 crores of the tax-payer’s money annually in the form of diesel subsidy . It does not require too much effort for one to foresee a similar fate in the case of the development of supply chain sector. On this front as well, the government appears ill-prepared for the proposed foreign investments.

Climate change impact of integrated supply chain systems are difficult to ignore. As per estimates in the UK, the food chain supply could account for one-fifth of total green-house emissions in the country . On average, food travels through a much longer distance and is preserved for a longer time before being finally consumed both being energy-consuming activities. Also the design and layout of the supermarkets make them highly energy-inefficient; they emit three times more Carbon dioxide per-square-foot than the average small fruits and vegetables retailer.

Instead of blindly waving a green flag to retail giants to march into the country-side and start building warehouses which become smoke factories, the government should prepare a blueprint on how renewable energy sources can be employed to meet the energy challenges of the sector. The government can also reduce greenhouse gas emissions by encouraging people to eat locally produced, fresh and seasonal food.

4.3 Elimination of Food Wastage

Presently the highly unorganised and inadequate supply chain in India is considered responsible for the wastage of about a quarter of the total produce between the harvest and the consumption stages. In theory, development of an efficient end-to-end cold chain will make it possible to eliminate this wastage during the collection, storage and transportation of fresh produce from farms to supermarket shelves. The increase in supply base of food items due to elimination of waste will supposedly translate into higher income for farmers and lower prices for consumers.

 

However, data from countries where retail is highly organised convey a different story. In the US and UK, anywhere between 20 and 30 percent food is wasted by retail giants between the stages of production and consumption. A huge quantity of fresh produce is thrown away by the supermarkets during the sorting process since they have a policy of accepting products that conform to strict standards in shape, size and appearance. Hence, fresh fruits and vegetables which are otherwise edible are thrown away from supermarket shelves for their unappealing looks. The Environment Agency estimates that the total UK retail food waste is 1.6 million tonnes per year . An estimated 20 to 40% of fruits and vegetables in the UK are discarded by supermarkets annually, simply on cosmetic grounds . Similarly trends have been observed in nations with highly organised retail such as the US.

 

Some of the other reasons for loss of food by supermarkets include:

Inaccurate Stock Management: Supermarkets do not do a very good job in anticipating demand for products and as a result invariably resort to overstocking. Most supermarkets have a take-back provision in their contracts with suppliers wherein unsold stock with 75 percent residual shelf life can be returned back to suppliers. As a result there is little incentive for them to efficiently manage stocks. Also, intense competition among supermarkets to stock fresh products results in edible items being thrown out even before their expiry dates have reached.

 

Bargain Offers: Attractive discounts and deals often lure customers into buying more than what is required. This way, supermarkets are able to dispose of the ‘not-so-fresh’ or ‘nearing expiry date’ products which have short shelf lives. In such cases, food waste is effectively transferred from the retailers to the consumers since sufficient time to consume the products is not available.

 

Defects in Packaging: Some of the products are discarded because of defects in packaging even though the food is fit for consumption.

Apart from the food waste, considerable amount of waste is also generated from the food packaging used by supermarkets. In contrast shopping at cooperative stores can reduce waste from packaging by up to 75 percent as observed by as study in Austria . A study conducted by the Waste & Resources Action Programme estimates that the food and drinks supply chain in the UK generates 5.3 million tonnes of waste in the form of packaging materials only. The total amount of waste generated when both rejected food and packaging materials are considered is a colossal amount and is responsible for serious environmental problems. In UK, an estimated emission of 10 million tonnes of CO2 equivalent greenhouse gases can be attributed to the waste generated by the food and drinks supply chain .

In case of wide-spread organised retail, disposal of waste of such high volumes would pose serious solid-waste management challenges to the various municipal bodies in Indian cities. There may be difficulty in finding adequate landfill sites especially in densely populated cities such as Mumbai. Open dumping of waste in cities has already contributed to emission of greenhouse gases and contamination of water bodies, thus degenerating quality of life for citizens.

Action Programme

4.4 Higher Profits for Farmers

The section in the Indian Government that supports foreign investments in retail, believes that such a move has the potential to uplift the lives of our farmers. The underlying rationale is that with the giant retailers setting up shops and investing in fully-integrated supply chain from farm gates to supermarket shelves, middlemen in the chain will be cut out. Without the middlemen, food producers would get higher prices for their produce. This does make economic sense at a superficial level, but there are strong evidences that contradict the hypothesis.

 

A study conducted by the UK Competition Commission in 2000 found out that major retail chains such as Sainsbury, Tesco and Marks and Spencer had a poor track record in their dealings with suppliers . The study specifically noted that the retailers were increasingly passing on a disproportionately higher component of cost increase in the supply chain to their small suppliers i.e. farmers. A similar study conducted in 2008 concluded that major retailers exercised their bargaining power to transfer “excessive risks and unexpected costs” to their suppliers and that such behaviour of the retailers was a characteristic feature of the market which “prevents, restricts or distorts competition in connection with the acquisition of groceries by large grocery retailers” . Further, the study noted that the near-monopoly of supermarket chains, which procure over 70 percent of food products in the UK, enables them to “dictate prices and force farmers into trading for less and less.” For instance, Tesco has introduced international ‘reverse’ auctions for its suppliers – food suppliers from all over the world are asked to bid to undercut each other until Tesco gets the lowest price. Farmers and other suppliers are put under enormous pressure to cut their prices, even blow the break-even point.

 

Another major problem is that farmers are left without a redressal mechanism if supermarkets pull out of procurement deals in the last minute, thus exploiting the lack of binding contractual agreements between them. On the other hand, farmers are penalised heavily by supermarkets if there are shipping delays. Supermarkets also use resort to unethical practices such as delay in paying invoices and passing on unexpected costs back to suppliers for transport, packaging and food wasted at the stores.

 

In the Indian context, studies conducted by Indian Council for Research on International Economic Relations in 2008, has noted that farmers selling products directly to Indian organised retail players have realised significantly higher income. The reason behind this is that Indian retail players are far from establishing a near-monopolistic position in the market to be able to create pricing pressure of the kind that exists in Western countries. Pricing pressures are passed on to suppliers only after the stage when retail players control both ends of the supply chain and literally have a monopoly in the market. Hence, increase in income of Indian farmers from Indian organised players is only a temporary trend and will subside once the major retailers are well entrenched in the market.

Another often-repeated argument in the favour of foreign retailers in India is that retailers can effectively link-up India’s food market to the global food market by serving as export hubs. This supposedly will translate into higher income for farmers. In reality however, supermarkets pass on very little of the increased margins from their export business to the farmers. For instance, Table 1 gives an overview of how income from exporting apples from South Africa to UK is staggered across different stakeholders in the value chain. As evident, supermarkets grab on to the largest share of income, accounting for 42 percent.

Table 1: Break-up of income from export of apples South Africa to U.K. supermarkets

Stakeholders in the Value Chain Share of income (%)

Farm labour 5

Farm income 4

Supermarket 42

Importer’s commission and duty 7

U.K. handling 7

Shipping 12

Transport and customs 6

Farm inputs and packaging 17

 

4.5 Improved Farming Technology

Experts have been talking about how foreign retailers will aid farmers in adopting ‘advanced farming techniques’. However, the term ‘advanced farming techniques’ in the West has come to mean capital and energy-intensive farming along with the use of lab-produced seeds and chemical farm inputs. Chemical-intensive farming may be suitable to climatic and soil conditions in the West but it has proved to be a financial disaster for farmers in India. Expenses on fertilisers, pesticides and farm equipments such as tractors make synthetic farming financially unattractive and have led to debt traps for farmers.

 

The fact that supermarkets strictly accept produce conforming to certain standards of size, shape and appearance only, exposes the farmers to the risk of their produce getting rejected if they do not meet these standards. This in turn pressurises the farmer to ‘factory-produce’ fruits and vegetables by resorting to chemicals such as fertilisers, insecticides, ripening agents, growth hormones and artificial colours. Prominent among them is the use of a hormone, Oxytocin which is used to make fruits and vegetables appear fresh and shiny. A survey conducted by the group ‘Friends of Earth’ in the UK found out that more than 50 percent of farmers disclosed that they have to apply more pesticides to meet the cosmetic standards of the supermarkets and another 50 percent said that they have to apply more pesticides for pest control and disease control due to supermarket requirements .

 

Clearly, supermarkets’ focus on appearance of fruits and vegetables rather than nutritional value is a big loss for consumers. The health and environmental impacts of chemicals used in farming is well documented and one does not need to mention their contribution to disorders such as cancer. It is not that these practices are not underway now, but wide-spread organised retailing will only provide an impetus to them. This assumes special importance at a time when organic and natural farming practices are witnessing a resurgence of sorts. Several farmers, tired of the adverse effects of synthetic farming such as declining soil fertility and contamination of ground water, are shifting to other sustainable farming methods. Similarly, consumers off-late have become more aware of their food choices and thus demand for natural and organic products have grown. However, given the current low supply of organic products, the prices are considerable higher. If sustainable farming methods were successfully propagated to the country’s farmers, the supply base of organic and natural products would increase and make it affordable for all. This may also cut-down on our health bills. But alas, the spirit of organised retail is against the spirit of sustainable farming, and could potentially reverse the recent trend of farmers adopting organic and natural farming methods. This of course will ensure that consumers do intake their daily dose of toxins as well as pills at discounted prices in supermarkets!

 

Another problem with retailers getting into contractual agreements with farmers to procure pre-decided amounts of specific fruits and vegetables is that they encourage monoculture plantations or single-crop farming. Traditionally farmers have relied on growing multiple crops in the same field as this diversifies the risk of crop failure due to factors such as adverse weather conditions, infestation of pest, etc. Practices such as growing multiple crops and crop-rotation retain the fertility of the soil and generally consume lower amount of external farm inputs. However, monoculture plantations deplete the fertility of the soil, reduce bio-diversity and are more prone to pests and diseases. To produce a given amount of crop each year requires an increasingly greater amount of external farm inputs such as fertilisers and pesticides. This in turn translates into high cost of production and thus lower profit margins for the farmers. Several incidents of farmer suicide in the past have highlighted the financially unsustainable nature of single-crop farming.

5. PROPOSED SOLUTION

Based on the various points discussed in the previous section, it appears that at this moment the Indian economy may not be ready to embrace large-scale FDI in the retail sector. However, a dramatic improvement in the supply-chain system is imperative to avoid the huge wastage of food products as well as increase the income of farmers. One of the lessons that several companies, NGO and government agencies have learnt about India is that to create sustainable solutions to issues concerning the rural people, the solution should seek to greater involvement and engagement of people at the grass-roots. The issue of developing an efficient supply-chain and reduction of food wastage is no different. This is vindicated by a recent MIT paper which points out that the solution to food storage in India needs to have a bottom-up approach rather than a top-down approach . It further says that communities need to be identified who will take charge of the issues in food storage, farm cooperatives being potential candidates. Top-down approaches such as those employed by the Walmarts and the Tescos may not work in India since they are misaligned to the farmers’ incentives.

One potentially successful approach could be ‘on-farm’ or ‘near-farm’ processing of fresh produce using technology that is not energy-intensive and is simple to use. A case in point is the pilot-project conducted by the All India Women’s Conference using solar drying technology. Using solar dryers, self-help groups of women were able to produce export quality value-added products from fruits and vegetables such as tomato powder, curry leaf powder, black pepper, rice wafers, mango bars, tapioca wafers etc. under clean and hygienic conditions, in their own backyards. Selling value-added products instead of raw food substantially increased the income of women groups . The dryers are simple to use and are completely run on solar energy which is abundant in India. By making the food last for a longer time, solar dryers reduce the need for complex storage systems. Another useful innovation is the use of metal silos which has been found to be successful in reducing food wastage and retaining the quality of food. These equipments can be expensive for individual farmers to invest in but ownership at the level of cooperatives is cost-effective.

Another interesting and promising technology is being developed by the company ‘Promethean Power Systems’ which has explored solar power to refrigerate milk, fruits and vegetables in rural India. It is reported to be cost-effective and replaces the use of diesel.

Talking about cooperatives, it is difficult to ignore the successful business model of Amul which has managed to create a complex yet efficient supply chain for a highly perishable item such as milk. It is noteworthy that these successes were achieved within the framework of a network of cooperatives organized in a hierarchical manner. More than 2 million milk producers are organised in more than 10,000 independent milk collection cooperatives known as Village Societies. Village Societies in turn supply milk to independent dairy cooperatives known as Unions. Products from the Unions are marketed under a single umbrella marketing organisation. Such a complex system involving numerous independent legal entities has worked because all of their objectives are perfectly aligned. The operation of the model has also overcome the constraints of the absence of professionally managed logistic providers; the Unions have developed a number of mechanisms to retain control and assure quality of the products. These and several such best practices ensure that consumers have access to quality products at reasonable price points and at the same time milk suppliers receive good prices for their products.

If a complex network of suppliers and supply-chain can be managed for an extremely perishable item such as milk, the same can be replicated for farm produce such as fruits and vegetables as well. However, this would require considerable investment of time and effort in creating linkages for simultaneous development of suppliers and customers. Developing cooperatives and creating a hierarchical system would require the Government to have a long-term vision. Cooperatives could also develop a standardised set of organic and natural farming techniques that would ensure the availability of food with high nutritional value to end-consumers.

Even if the government goes ahead with the decision of opening up FDI channel in retail markets, entry of foreign players should be regulated with adequate social safeguards so that the concerned policies can be fine tuned with time. Policies also need to have in-built mechanism to provide employment to people whose livelihoods are lost due to entry of supermarkets. If the government can curb on unfair practices of the retailers such as predatory pricing and pressurising farmers, consumers can benefit from the lower prices without farmers and marginal retailers being subjected to hardships. Entry of foreign retailers may result in government prioritising spending on road and power infrastructure in case retailers lobby hard. It may also spur the development of energy-efficient refrigeration technology or novel technology powered by renewable energy sources to suit Indian conditions.

It is unlikely that agricultural system could be overhauled by using only one strategy across the entire country. India being a highly diverse nation, each region has its own set of unique challenges. An approach that combines multiple strategies such as formation of farmers’ cooperative societies, modernisation of mandis, small-scale food-processing units near farms and investment in refrigeration facilities, etc based on local conditions may be required to be followed. The strategies may or may not include the entry of foreign retail players but should definitely involve the people at the grassroots to make it successful in the long run.

Foreign Direct Investment in Indian Retail Sector – An Analysis

Posted on | by Pulkit Agarwal | 74 Comments on Foreign Direct Investment in Indian Retail Sector – An Analysis

BY:-Pulkit Agarwal

 Esha Tyagi

 

Introduction

Just back from first frenzied shopping experience in the UK, a four year old ever-inquisitive daughter asked to her father, “Why do we not have a Harrods in Delhi? Shopping there is so much fun!” Simple question for a four-year-old, but not so simple for her father to explain.

As per the current regulatory regime, retail trading (except under single-brand product retailing — FDI up to 51 per cent, under the Government route) is prohibited in India. Simply put, for a company to be able to get foreign funding, products sold by it to the general public should only be of a ‘single-brand’; this condition being in addition to a few other conditions to be adhered to. That explains why we do not have a Harrods in Delhi.

India being a signatory to World Trade Organisation’s General Agreement on Trade in Services, which include wholesale and retailing services, had to open up the retail trade sector to foreign investment. There were initial reservations towards opening up of retail sector arising from fear of job losses, procurement from international market, competition and loss of entrepreneurial opportunities. However, the government in a series of moves has opened up the retail sector slowly to Foreign Direct Investment (“FDI”). In 1997, FDI in cash and carry (wholesale) with 100 percent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 percent investment in a single brand retail outlet was also permitted in 2006. FDI in Multi-Brand retailing is prohibited in India.

Definition of Retail

In 2004, The High Court of Delhi[1] defined the term ‘retail’ as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). A sale to the ultimate consumer.

Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customersRetailing is the last link that connects the individual consumer with the manufacturing and distribution chain. A retailer is involved in the act of selling goods to the individual consumer at a margin of profit.

Division of  Retail Industry – Organised and Unorganised Retailing

The retail industry is mainly divided into:- 1) Organised and 2) Unorganised Retailing

Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.

Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers. The organized retail however is at a very nascent stage. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India’s GDP.[2] 

FDI Policy in India

FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. To put in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy.[3]

Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (‘RBI’) in this regard had issued a notification,[4] which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time.

The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP).

The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (‘FIPB’) would be required.

FDI Policy with Regard to Retailing in India

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010[5] which provide the sector specific guidelines for FDI with regard to the conduct of trading activities.

a)      FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route.

b)      FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006 Series)[6].

c)      FDI is not permitted in Multi Brand Retailing in India.

Entry Options  For Foreign Players prior to FDI Policy 

Although prior to Jan 24, 2006, FDI was not authorised in retailing, most general players ha\d been operating in the country.  Some of entrance routes  used by them have been discussed in sum as below:-

1.         Franchise Agreements 

It is an easiest track to come in the Indian market. In franchising and commission agents’ services, FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. This is a most usual mode for entrance of quick food bondage opposite a world.  Apart from quick food bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks as good as Spencer, have entered Indian marketplace by this route.
2.         Cash And Carry Wholesale Trading 

100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers.[7] The wholesaler deals only with smaller retailers and not Consumers. Metro AG of Germany was the first significant global player to enter India through this route.

3.         Strategic Licensing Agreements 

Some foreign brands give exclusive licences and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchisees. Mango, the Spanish apparel brand has entered India through this route with an agreement with Piramyd, Mumbai, SPAR entered into a similar agreement with Radhakrishna Foodlands Pvt. Ltd

4.         Manufacturing and Wholly Owned Subsidiaries.

The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian companies and are, therefore, allowed to do retail. These companies have been authorised to sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlets, etc. For instance, Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary, Nike India Private Limited.

FDI in Single Brand Retail

The Government has not categorically defined the meaning of “Single Brand” anywhere neither in any of its circulars nor any notifications.

In single-brand retail, FDI up to 51 per cent is allowed, subject to Foreign Investment Promotion Board (FIPB) approval and subject to the conditions mentioned in Press Note 3[8] that (a) only single brand products would be sold (i.e., retail of goods of multi-brand even if produced by the same manufacturer would not be allowed), (b) products should be sold under the same brand internationally, (c) single-brand product retail would only cover products which are branded during manufacturing and (d) any addition to product categories to be sold under “single-brand” would require fresh approval from the government.

While the phrase ‘single brand’ has not been defined, it implies that foreign companies would be allowed to sell goods sold internationally under a ‘single brand’, viz., Reebok, Nokia, Adidas. Retailing of goods of multiple brands, even if such products were produced by the same manufacturer, would not be allowed. 

Going a step further, we examine the concept of ‘single brand’ and the associated conditions:

FDI in ‘Single brand’ retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets.

But, what is a ‘brand’?

Brands could be classified as products and multiple products, or could be manufacturer brands and own-label brands. Assume that a company owns two leading international brands in the footwear industry – say ‘A’ and ‘R’. If the corporate were to obtain permission to retail its brand in India with a local partner, it would need to specify which of the brands it would sell. A reading of the government release indicates that A and R would need separate approvals, separate legal entities, and may be even separate stores in which to operate in India. However, it should be noted that the retailers would be able to sell multiple products under the same brand, e.g., a product range under brand ‘A’ Further, it appears that the same joint venture partners could operate various brands, but under separate legal entities.[9]

Now, taking an example of a large departmental grocery chain, prima facie it appears that it would not be able to enter India. These chains would, typically, source products and, thereafter, brand it under their private labels. Since the regulations require the products to be branded at the manufacturing stage, this model may not work. The regulations appear to discourage own-label products and appear to be tilted heavily towards the foreign manufacturer brands.[10]

There is ambiguity in the interpretation of the term ‘single brand’. The existing policy does not clearly codify whether retailing of goods with sub-brands bunched under a major parent brand can be considered as single-brand retailing and, accordingly, eligible for 51 per cent FDI.  Additionally, the question on whether co-branded goods (specifically branded as such at the time of manufacturing) would qualify as single brand retail trading remains unanswered.

FDI in Multi Brand Retail 

The government has also not defined the term Multi Brand. FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof.

In July 2010, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce   circulated a discussion paper[11] on allowing FDI in multi-brand retail. The paper doesn’t suggest any upper limit on FDI in multi-brand retail. If implemented, it would open the doors for global retail giants to enter and establish their footprints on the retail landscape of India. Opening up FDI in multi-brand retail will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores offering a range of household items and grocery directly to consumers in the same way as the ubiquitous ’kirana’ store.

Foreign Investor’s Concern Regarding FDI Policy in India
For those brands which adopt the franchising route as a matter of policy, the current  FDI Policy will not make any difference. They would have preferred that the Government liberalize rules for maximizing their royalty and franchise fees. They must still rely on innovative structuring of franchise arrangements to maximize their returns. Consumer durable majors such as LG and Samsung, which have exclusive franchisee owned stores, are unlikely to shift from the preferred route right away.
For those companies which choose to adopt the route of 51% partnership, they must tie up with a local partner. The key is finding a partner which is reliable and who can also teach a trick or two about the domestic market and the Indian consumer. Currently, the organized retail sector is dominated by the likes of large business groups which decided to diversify into retail to cash in on the boom in the sector – corporates such as Tata through its brand Westside, RPG Group through Foodworld, Pantaloon of the Raheja Group and Shopper’s Stop. Do foreign investors look to tie up with an existing retailer or look to others not necessarily in the business but looking to diversify, as many business groups are doing?

An arrangement in the short to medium term may work wonders but what happens if the Government decides to further liberalize the regulations as it is currently contemplating? Will the foreign investor terminate the agreement with Indian partner and trade in market without him? Either way, the foreign investor must negotiate its joint venture agreements carefully, with an option for a buy-out of the Indian partner’s share if and when regulations so permit. They must also be aware of the regulation which states that once a foreign company enters into a technical or financial collaboration with an Indian partner, it cannot enter into another joint venture with another Indian company or set up its own subsidiary in the ‘same’ field’ without the first partner’s consent if the joint venture agreement does not provide for a ‘conflict of interest’ clause. In effect, it means that foreign brand owners must be extremely careful whom they choose as partners and the brand they introduce in India. The first brand could also be their last if they do not negotiate the strategic arrangement diligently.

Concerns for the Government for only Partially Allowing FDI in Retail Sector 

A number of concerns were expressed with regard to partial opening of the retail sector for FDI. The Hon’ble Department Related Parliamentary Standing Committee on Commerce, in its 90th Report, on ‘Foreign and Domestic Investment in Retail Sector’, laid in the Lok Sabha and the Rajya Sabha on 8 June, 2009, had made an in-depth study on the subject and identified a number of issues related to FDI in the retail sector. These included:

It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets, leading to large scale displacement of persons employed in the retail sector. Further, as the manufacturing sector has not been growing fast enough, the persons displaced from the retail sector would not be absorbed there.

Another concern is that the Indian retail sector, particularly organized retail, is still under-developed and in a nascent stage and that, therefore, it is important that the domestic retail sector is allowed to grow and consolidate first, before opening this sector to foreign investors. 

Antagonists of FDI in retail sector oppose the same on various grounds, like, that the entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs, since the unorganized retail sector employs an enormous percentage of Indian population after the agriculture sector; secondly that the global retailers would conspire and exercise monopolistic power to raise prices and monopolistic (big buying) power to reduce the prices received by the suppliers; thirdly, it would lead to asymmetrical growth in cities, causing discontent and social tension elsewhere. Hence, both the consumers and the suppliers would lose, while the profit margins of such retail chains would go up.

LIMITATIONS OF  THE PRESENT SETUP

Infrastructure

There has been a lack of investment in the logistics of the retail chain, leading to an inefficient market mechanism. Though India is the second largest producer of fruits and vegetables (about 180 million MT), it has a very limited integrated cold-chain infrastructure, with only 5386 stand-alone cold storages, having a total capacity of 23.6 million MT. , 80% of this  is used only for potatoes. The chain is highly fragmented and hence, perishable horticultural commodities find it difficult to link to distant markets, including overseas markets, round the year.  Storage infrastructure is necessary for carrying over the agricultural produce from production periods to the rest of the year and to prevent distress sales.  Lack of adequate storage facilities cause heavy losses to farmers in terms of wastage in quality and quantity of produce in general. Though FDI is permitted in cold-chain to the extent of 100%, through the automatic route, in the absence of FDI in retailing; FDI flow to the sector has not been significant.

Intermediaries dominate the value chain

Intermediaries often flout mandi norms and their pricing lacks transparency.  Wholesale regulated markets, governed by State APMC Acts, have developed a monopolistic and non-transparent character.  According to some reports, Indian farmers realize only 1/3rd of the total price paid by the final consumer, as against 2/3rd by farmers in nations with a higher share of organized retail.   

Improper Public Distribution System (“PDS”)

There is a big question mark on the efficacy of the public procurement and PDS set-up and the bill on food subsidies is rising.  In spite of such heavy subsidies, overall food based inflation has been a matter of great concern.  The absence of a ‘farm-to-fork’ retail supply system has led to the ultimate customers paying a premium for shortages and a charge for wastages. 

No Global Reach

The Micro Small & Medium Enterprises (“MSME”) sector has also suffered due to lack of branding and lack of avenues to reach out to the vast world markets.  While India has continued to provide emphasis on the development of MSME sector, the share of unorganised sector in overall manufacturing has declined from 34.5% in 1999-2000 to 30.3% in 2007-08[12]. This has largely been due to the inability of this sector to access latest technology and improve its marketing interface.

Rationale behind Allowing FDI in Retail Sector

FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenario of low competition and poor productivity.

The policy of single-brand retail was adopted to allow Indian consumers access to foreign brands. Since Indians spend a lot of money shopping abroad, this policy enables them to spend the same money on the same goods in India. FDI in single-brand retailing was permitted in 2006, up to 51 per cent of ownership. Between then and May 2010, a total of 94 proposals have been received. Of these, 57 proposals have been approved. An FDI inflow of US$196.46 million under the category of single brand retailing was received between April 2006 and September 2010, comprising 0.16 per cent of the total FDI inflows during the period. Retail stocks rose by as much as 5%. Shares of Pantaloon Retail (India) Ltd ended 4.84% up at Rs 441 on the Bombay Stock Exchange. Shares of Shopper’s Stop Ltd rose 2.02% and Trent Ltd, 3.19%. The exchange’s key index rose 173.04 points, or 0.99%, to 17,614.48.  But this is very less as compared to what it would have been had FDI upto 100% been allowed in India for single brand.[13]

The policy of allowing 100% FDI in single brand retail can benefit both the foreign retailer and the Indian partner – foreign players get local market knowledge, while Indian companies can access global best management practices, designs and technological knowhow. By partially opening this sector, the government was able to reduce the pressure from its trading partners in bilateral/ multilateral negotiations and could demonstrate India’s intentions in liberalising this sector in a phased manner.[14]

Permitting foreign investment in food-based retailing is likely to ensure adequate flow of capital into the country & its productive use, in a manner likely to promote the welfare of all sections of society, particularly farmers and consumers. It would also help bring about improvements in farmer income & agricultural growth and assist in lowering consumer prices inflation.[15]

Apart from this, by allowing FDI in retail trade, India will significantly flourish in terms of quality standards and consumer expectations, since the inflow of FDI in retail sector is bound to pull up the quality standards and cost-competitiveness of Indian producers in all the segments. It is therefore obvious that we should not only permit but encourage FDI in retail trade.

Lastly, it is to be noted that the Indian Council of Research in International Economic Relations (ICRIER), a premier economic think tank of the country, which was appointed to look into the impact of BIG capital in the retail sector, has projected the worth of Indian retail sector to reach $496 billion by 2011-12 and ICRIER has also come to conclusion that investment of ‘big’ money (large corporates and FDI) in the retail sector would in the long run not harm interests of small, traditional, retailers.[16]

In light of the above, it can be safely concluded that allowing healthy FDI in the retail sector would not only lead to a substantial surge in the country’s GDP and overall economic development, but would inter alia also help in integrating the Indian retail market with that of the global retail market in addition to providing not just employment but a better paying employment, which the unorganized sector (kirana and other small time retailing shops) have undoubtedly failed to provide to the masses employed in them.

Industrial organisations such as CII, FICCI, US-India Business Council (USIBC), the American Chamber of Commerce in India, The Retail Association of India (RAI) and Shopping Centers Association of India (a 44 member association of Indian multi-brand retailers and shopping malls) favour a phased approach toward liberalising FDI in multi-brand retailing, and most of them agree with considering a cap of 49-51 per cent to start with.

The international retail players such as Walmart, Carrefour, Metro, IKEA, and TESCO share the same view and insist on a clear path towards 100 per cent opening up in near future. Large multinational retailers such as US-based Walmart, Germany’s Metro AG and Woolworths Ltd, the largest Australian retailer that operates in wholesale cash-and-carry ventures in India, have been demanding liberalisation of FDI rules on multi-brand retail for some time.[17]

Thus, as a matter of fact FDI in the buzzing Indian retail sector should not just be freely allowed but per contra should be significantly encouraged. Allowing FDI in multi brand retail can bring about Supply Chain Improvement, Investment in Technology, Manpower and Skill development,Tourism Development, Greater Sourcing From India, Upgradation in Agriculture, Efficient Small and Medium Scale Industries, Growth in market size and Benefits to govemment through greater GDP, tax income and employment generation.[18]

Prerequisites before allowing FDI in Multi Brand Retail and Lifting Cap of Single Brand Retail

 

FDI in multi-brand retailing must be dealt cautiously as it has direct impact on a large chunk of population. Left alone foreign capital will seek ways through which it can only multiply itself, and unthinking application of capital for profit, given our peculiar socio-economic conditions, may spell doom and deepen the gap between the rich and the poor. Thus the proliferation of foreign capital into multi-brand retailing needs to be anchored in such a way that it results in a win-win situation for India. This can be done by integrating into the rules and regulations for FDI in multi-brand retailing certain inbuilt safety valves. For example FDI in multi –brand retailing can be allowed in a calibrated manner with social safeguards so that the effect of possible labor dislocation can be analyzed and policy fine tuned accordingly. To ensure that the foreign investors make a genuine contribution to the development of infrastructure and logistics, it can be stipulated that a percentage of FDI should be spent towards building up of back end infrastructure, logistics or agro processing units. Reconstituting the poverty stricken and stagnating rural sphere into a forward moving and prosperous rural sphere can be one of the justifications for introducing FDI in multi-brand retailing. To actualize this goal it can be stipulated that at least 50% of the jobs in the retail outlet should be reserved for rural youth and that a certain amount of farm produce be procured from the poor farmers. Similarly to develop our small and medium enterprise (SME), it can also be stipulated that a minimum percentage of manufactured products be sourced from the SME sector in India. PDS  is still in many ways the life line of the people living below the poverty line. To ensure that the system is not weakened the government may reserve the right to procure a certain amount of food grains for replenishing the buffer. To protect the interest of small retailers the government may also put in place an exclusive regulatory framework. It will ensure that the retailing giants do resort to predatory pricing or acquire monopolistic tendencies. Besides, the government and RBI need to evolve suitable policies to enable the retailers in the unorganized sector to expand and improve their efficiencies. If Government is allowing FDI, it must do it in a calibrated fashion because it is politically sensitive and link it (with) up some caveat from creating some back-end infrastructure.

Further, To take care of the concerns of the Government before allowing 100% FDI in Single Brand Retail and Multi- Brand Retail, the following recommendations are being proposed [19]:-

  • Preparation of a legal and regulatory framework and enforcement mechanism to ensure that large retailers are not able to dislocate small retailers by unfair means.
  • Extension of institutional credit, at lower rates, by public sector banks, to help improve efficiencies of small retailers; undertaking of proactive programme for assisting small retailers to upgrade themselves.
  • Enactment of a National Shopping Mall Regulation Act to regulate the fiscal and social aspects of the entire retail sector.
  • Formulation of a Model Central Law regarding FDI of Retail Sector.

Conclusion 

A Start Has Been Made 

Walmart has a joint venture with Bharti Enterprises for cash-and-carry (wholesale) business, which runs the ‘Best Price’ stores. It plans to have 15 stores by March and enter new states like Andhra Pradesh , Rajasthan, Madhya Pradesh and Karnataka.[20]
Duke, Wallmart’s CEO opined that FDI in retail would contain inflation by reducing wastage of farm output as 30% to 40% of the produce does not reach the end-consumer. “In India, there is an opportunity to work all the way up to farmers in the back-end chain. Part of inflation is due to the fact that produces do not reach the end-consumer,” Duke said, adding, that a similar trend was noticed when organized retail became popular in the US.[21]

Many of the foreign brands would come to India if FDI in multi brand retail is permitted which can be a blessing in disguise for the economy.[22]

Back-end logistics must for FDI in multi-brand retail 

The government has added an element of social benefit to its latest plan for calibrated opening of the multi-brand retail sector to foreign direct investment (FDI). Only those foreign retailers who first invest in the back-end supply chain and infrastructure would be allowed to set up multi brand retail outlets in the country. The idea is that the firms must have already created jobs for rural India before they venture into multi-brand retailing.

It can be said that the advantages of allowing unrestrained FDI in the retail sector evidently outweigh the disadvantages attached to it and the same can be deduced from the examples of successful experiments in countries like Thailand and China; where too the issue of allowing FDI in the retail sector was first met with incessant protests, but later turned out to be one of the most promising political and economical decisions of their governments and led not only to the commendable rise in the level of employment but also led to the enormous development of their country’s GDP.

Moreover, in the fierce battle between the advocators and antagonist of unrestrained FDI flows in the Indian retail sector, the interests of the consumers have been blatantly and utterly disregarded. Therefore, one of the arguments which inevitably needs to be considered and addressed while deliberating upon the captioned issue is the interests of consumers at large in relation to the interests of retailers.

It is also pertinent to note here that it can be safely contended that with the possible advent of unrestrained FDI flows in retail market, the interests of the retailers constituting the unorganized retail sector will not be gravely undermined, since nobody can force a consumer to visit a mega shopping complex or a small retailer/sabji mandi. Consumers will shop in accordance with their utmost convenience, where ever they get the lowest price, max variety, and a good consumer experience.

The Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian economy at one point of time or the other would be embraced by liberalization, privatization and globalization.FDI in multi-brand retailing and lifting the current cap of 51% on single brand retail is in that sense a steady progression of that trajectory. But the government has by far cushioned the adverse impact of the change that has ensued in the wake of the implementation of Industrial Policy 1991 through safety nets and social safeguards. But the change that the movement of retailing sector into the FDI regime would bring about will require more involved and informed support from the government. One hopes that the government would stand up to its responsibility, because what is at stake is the stability of the vital pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio economic equilibrium of the entire country.

Bibliography

Websites :-

 

  • www.retailguru.com

 

 

 

Reports/ Research Papers

 

  • A.T. Kearney’s Report on Indian Retail, 2008
  • FDI Consolidated Policy
  • Dr.R.KBalyan “FDI in Indian Retail- Beneficial or Detrimental-research paper
  • Damayanthi/S.Pradeekumar-FDI is it the Need of he Hour? Google search
  • Dipakumar Dey-Aspects of Indian Economy-Google search

 

Newspapers

  • The Economic Times
  • The Business Standard

 

[1]Association of Traders of Maharashtra v. Union of India, 2005 (79) DRJ 426

[2] India’s Retail Sector (Dec 21, 2010) http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf

[3]Hemant Batra, Retailing Sector In India Pros Cons (Nov 30, 2010)http://www.legallyindia.com/1468-fdi-in-retailing-sector-in-india-pros-cons-by-hemant-batra

[4] Notification No. FEMA 20/2000-RB dated May 3, 2000

[5]FDI_Circular_02/2010, DIPP

[6] http://siadipp.nic.in/policy/changes/pn3_2006.pdf

[7] Supra Note 4

[8] Ibid.

[9] Mohan Guruswamy, Implications of FDI in Retail, (Dec 16 2010) http://www.scribd.com/doc/36888679

[10]Ibid.

[11] Discussion Paper on FDI in Multi Brand Retail Trading, http://dipp.nic.in/DiscussionPapers/DP_FDI_Multi-BrandRetailTrading_06July2010.pdf

[12]  National Accounts Statistics, 2009

[13] Nabael Mancheri, India’s FDI policies: Paradigm shift, http://www.eastasiaforum.org/2010/12/24/indias-fdi-policies-paradigm-shift/-

[14] Discussion Paper on FDI in Multi Brand Retail Trading, http://dipp.nic.in/DiscussionPapers/DP_FDI_Multi-BrandRetailTrading_06July2010.pdf

[15] Ibid

[16]Sarthak Sarin, (Nov 23, 2010) Foreign Direct Investment in Retail Sector  http://www.legalindia.in/foreign-direct-investment-in-retail-sector-others-surmounting-india-napping

[17] Nabael Mancheri, India’s FDI policies: Paradigm shift, http://www.eastasiaforum.org/2010/12/24/indias-fdi-policies-paradigm-shift/-

[18] Supra Note 11

[19] Ibid

[20]Economic Times Retail News, FDI in retail to contain inflation (Dec 31, 2010) walmart http://retail-guru.com/allow-100-fdi-in-retail-to-contain-inflation-walmart

[21] Ibid

[22] Supra note 17