FDI IN RETAIL SEGMENT : A BANE OR BOON

Foreign Direct Investment, a much exalted at the same time vilified term of the modern global order. The time since a debate broken out in India over the government's decision to allow FDI in Indian retail segment, i was contemplating to come up with a blog entry to have a threadbare analysis of the FDI in multi brand retail segment. The hype and controversies over the term has settled down at least for now and it is the perfect time to deliberate on the topic.

FDI is not a new concept to this part of the world ie India, we are very familiar with the term. We have already allowed 100 percent FDI in single brand sector and there are many multi national companies who are engaged in cash and carry trade in India, despite these acquaintances a fierce opposition was erupted against the government's move to open up multi retail segment, why???

In India more than 90 percent of workforce is concentrated in the unorganized sector, and the retail sector is the largest in terms of employment after agriculture. As per National Sample Survey's assessment for the year 2009-10, the service sector category that includes wholesale and retail trade provide jobs for 44 million in the total 459 million which is really a large number and is also the  primary reason for the staunch resistance against the government's attempt to bring in Retail FDI.

Prospects of FDI

The supporters of FDI substantiate their view by pointing out the factor of loss incurred by India from the yearly wastage of her perishable products due to lack of logistic supports like refrigeration, storage, speedy transportation etc and the loss is calculated to an amount of RS 1 trillion. The loss incurred at various stages of production, collection and transportation of commodities inflict the brunt of loss on the farmers in the form of reduced profit and over the consumers in the form of increased commodity price.

They advocate that the FDI would result in the creation of back end infrastructures in various pockets to ensure proper collection, storage and transportation of goods from the production site to the market.. Better infrastructures means reduced wastage and increased profit for the farmers and reduced cost to consumer end products. Multi national companies will engage with the farmer’s guild directly preventing the middle men from exploiting the farmers. Diverse products of high quality will be available in the domestic market as the supply chain of Multi National Companies is international, which again help best quality domestic commodities to find its share in international market. The diverse products and goods at reasonable or low price would add up the consumer satisfaction. As a protective mechanism to safeguard the interests of small and medium enterprises the FDI policy mandates the Multi National Company's to acquire 30 percent of materials from them. Thus FDI in retail will be a reformation to modernize retail segment to elevate the consumer satisfaction with out endangering the position of small players in the field.

Demerits

The other version of the story about FDI in retail says that all the merits ascribed will be for a short term. They contradict that the deep pockets of the MNC's will be used for predatory price policing there by eliminating the small and medium players resulting in a monopoly market. The MNC's once carve out the niche, will be dictating its terms to the farmers who in an atmosphere of limited buyers will be forced to sell their products at cheap price. It is assumed that even MNC's will wield its clout to determine the cropping pattern of the regions. The customers will also feel the heat when the mega retailers following the consolidation of their position increase the final product price. Thus FDI will be a bane rather than a boon according to this fraction of people.

Conclusion

From the threadbare analysis it is very clear that we are in a stalemate with regard to FDI in retail, the only thing one can do is to put in safeguards to fix the loop holes and to bring in a more Indianised policy that serves every ones best interest with out bias.