The Times of India has reported that the government has initiated a debate on allowing Foreign direct Investment (FDI) in multi-brand retail business by releasing a discussion paper. The argument given is that such a move will raise income for farmers and keep prices under control by reducing layers in the distribution chain between producers and buyers.
The political sensitivity of FDI in multi-brand retail can be well understood by the fact that the government had to use the farmer card to sell the idea. After all, two of the largest vote banks for any political party in India are the farmers and the traders and in that order.
Industry has been quick to welcome the move, seeing it as the first definitive step towards ushering in quality and competition besides giving the consumer a wider choice. It is argued that if the policy process is done strategically, it can create a synergistic relationship between the small retailer and the the large retail chains. This would be more pronounced in the cash and carry retail formats.
The discussion paper released by the industry ministry said, “keeping in view the large requirement for funds for back-end infrastructure, there is a case for opening up of the retail sector to the foreign investments.” The issue being politically sensitive, there was a caveat that there should be enough safeguards for the domestic traders as also employment opportunities. The paper has set July 31 as the deadline for submitting comments.
While FDI in multi-brand retail is banned, foreign investment in single brand retail was opened in April 2006 and has so far attracted approximately Rs. 900 crore (USD 195 Million), the paper points out. Arguing that India was losing farm products, fruits and vegetables worth Rs. 100,000 crores (USD 20-22 Billion) annually, the paper staid establishment of cold chains and back-end infrastructure could reduce the losses by more than half. The recent floods in the northern part of India which have resulted in the loss of huge quantity of wheat bear out these assertions.
The idea of allowing FDI in multi-brand retail has so far remained a political hot potato and faced strong opposition from major political parties who argue that global players would swamp the neighbourhood ‘pop-and-mom’ (kirana) stores out of business. While one cannot entirely dismiss this stand, it is also true that an increased dose of competition will do a lot of good to the consumer and the retail industry as a whole by bringing down the consumer prices. Also the investments into distribution and logistics would bring down the wastage in the entire supply-chain from the farmer to the consumer by over 50% according to the estimates of the industry analysts.
It is therefore no wonder that industry, including big players in the domestic organized retail, has been supporting FDI in multi-brand retail. Even Prime Minister Manmohan Singh had sought a debate, earlier this year on, opening up the sector pointing to the vast difference between the prices at the farm gate and the market place.
The discussion paper has said that in the present system farmers get just a third of the consumer price of their produce.
In the next few days we will try to get a discussion going on the various aspects of the FDI in multi-brand retail and try to understand and add value to the issues for resolution as mentioned in the discussion paper. So stay tuned in…
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