FDI in Retail - A One Point Agenda

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Finally, it should be abundantly clear to all but the utterly naïve, that the concerned Departments of the Government are working at a feverish pace just to push one Agenda:

Allow FDI (read Wal-Mart) in Retail

They have so far tried to put forth all manner of arguments to support the proposal. In earlier articles, the hollowness of all such arguments has been dealt with. The Government doggedly keeps on developing new ideas on making the proposal palatable enough to gulp it down the throats of the Indian Entrepreneurs, Farmers and Consumers alike. However, try as they might, it is just not possible to justify the proposal as it does not serve the interests of any of the stakeholders, except the Wal-Marts, at this point of time.

It is for this reason that each of the arguments - some new and some old - which have appeared in news reports during the last few days, must be placed in perspective even at the cost of repetition.

Once again, the Minister for Commerce is reported to have remarked that 98% of the Retail outlets are small and only 2% in the organized sector. What does that mean as far as justifying FDI is concerned? Nothing. It only means that there is scope for growth in the organized sector. Indeed, Organized Retail is growing in the Cities at a fast pace but that growth is being achieved by the indigenous entrepreneurs who lack nothing to grow further. The country certainly is not dependent upon Foreign Investors for this sector to grow, as already discussed in an earlier article.

Once again, it has been grandly declared that the Mom and Pop Stores would not be touched. What does that mean? What about the other Retail operations that are not ‘Mom and Pop’ format but are still very much part of the Retail Backbone of the country – the Co-operative Stores, the new breed of Organized Retailers and others? Would they not have to yield their share to the Global Retailers?

The Government was said to be looking for a model that would not displace or replace the present domestic retail. How can this be ensured? Moreover, does not the present domestic retail have a right to exploit the future potential?

The Minister also showed great concern for the farmers:”Our ultimate concern for any decision is that the benefits should finally reach the agriculture sector”. In reality, what the farmers may gain solely due to the presence of Global Retailers and not otherwise, is at best rather nebulous and that too at some point in the future, as shown in earlier articles. On the other hand, the claims of farmers gaining from the presence of Global players could well turn out to be bogus if experience in two illustrative processed food products, Instant Coffee and Potato Chips, is any indication. In both these instances (and many more could be found), the beneficiary is neither the farmer nor the customer. The farmer ends up selling cheaply because of the large quantities bought and the customer ends up paying a high price for the Brand tag. The only one that gains phenominally is the Global entity and that too with virtually no technological inputs. If at all it is the case that farmers would tend to gain from the growth of Organized Retail, they can equally benefit from the growth of indigenously owned, not necessarily foreign-owned, Organized Retail.

Again, out of abounding concern for the ‘Mom and Pop’ stores, Government is also said to be thinking of imposing a minimum limit of 10,000 sq.ft. of floor space and limit the number of stores to one per million. In the same breath, it is clarified that all these restrictions would be only for the short term.

It is also likely to mandate that at least 500-600 sq.ft. of the floor space should be reserved for Foods and Processed Foods alone. Would the Government have us believe that this is a ‘restrictive’ condition for the Global Retailer? Every one involved in Large Retail knows that it is actually the Food and Grocery Department that attracts customers to a store and this increases the sales of the other product lines.

Incidentally, in nearly all the dialogues, discussions and media reports coming from the Government side, the term ‘Mom-and Pop stores’ is repeatedly used. Interestingly, this term is peculiar to the U.S.A. Of course, this is not to suggest that the Government’s script is in any way influenced by others. It may be just a coincidence that it has coined the same expression to describe the small retailers.

Looking to the changing face of Global Economics, the country will have to be prepared for FDI even in Retail sector at some stage in the future. But for the present, the field should be left open to the indigenous entrepreneur and FDI should not be permitted, whether 49% or even 1% to allow the Global Retailers to entrench themselves in this initial Retail expansion phase. After five years, it would not matter even if the sector were made free for entry but provided tangible gains could be demonstrated.

Update: 24/07/05

A news item suggests that the DIPP would soon be preparing a note based on recommendations by the Ministry of Consumer Affairs. The Ministry has once again raised the bogey of helping agriculture. Curiously, the Ministry of Consumer Affairs is said to be relying on a Report presented by ICRIER, thus giving it a facade of objectivity.

Partly as a justification for liberalising FDI, the ICRIER study has supposedly pointed out that the present ban on FDI in Retail has not acted as an entry barrier as the foreign retailers were entering through manufacturing, sourcing etc. To say the least, this is an extremely strange piece of reasoning by a responsible organisation. The existing Government policy allows FDI in certain areas in a certain manner and if a foreign entity choses to enter the country under the existing dispensations, let that be so! If FDI is already entering in this manner, there is hardly a reason to liberalise. In fact, ICRIER has gone to the extreme by suggesting no restrictions of any kind on FDI in Retail. Placing some restrictions in the eventual Policy would enable the Government to claim that there was application of mind and the Report was not followed in toto.

The other point raised by many about India taking unilateral obligations, has been answered by the Government officials claiming that even if India was to autonomously liberalise the retail sector, it would not undertake bindings in the sector at the WTO. Is this mature reasoning from a responsible Government? Once FDI is allowed, would it matter whether or not the country takes a formal binding under WTO ? Could those who have already entered the country be asked to go back at some stage? It also begs the question as to what would the country be getting from the global community in return for this gracious unilateral gesture.

It is very difficult indeed to swallow what the Government is trying to cook up.

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