FDI IN RETAIL - TO BUY OR NOT TO BUY....

By Ruma Dubey

For once, it is a pleasure to see the politicians talking and debating in the Lok Sabha. This is how things should function in the ideal world. But turn around to the Rajya Sabha and all the ugliness of coalition politics comes to fore.

FDI in multi brand retail has taken over all other policies and hopefully, once the voting gets over today, the Parliament will turn its attention to other policies. In the Lok Sabha, 251 votes are needed to get the go-ahead and UPA says it already has 261 votes in the pocket. Rajya Sabha on the other hand, is a completely different but depressing story.

It is high time that a decision is made on FDI at the earliest and we move on to other issues. Its been raging on for too long. If one may recollect, the Cabinet had approved 51% FDI in multi brand retail in November’11 but it did not get approval from Mamataji and hence was put in abeyance. But today, Mamataji is not much in the picture. The Congress has built it well, proposing to allow FDI in states which are not opposed to it; read that as “Congress governed states." What happens if in re-election, Congress loses its place in that State?

In a way, this partial allowance of FDI in multi brand retail is a good thing too. It will show whether or not it is good, in terms of employment, inflation, co-existence of kirana’s. If it proves to be good, maybe that in itself will convince the current states which are opposed to accept it too. And if it does bring in the evils which some states fear, then it is well and good that it is not being followed all across the country. The Congress governed states allowing the FDI will thus become experimental grounds.

In a nutshell let us have a look at the merits and demerits of having FDI.

A thumbs up!

• It will do away with the middle men who have been holding the farmers to ransom.
• With companies procuring goods directly, costs could come down.
• Large retailers coming will mean investment in supply chains, cold storage, logistics, technology and global best practices.
• It will create employment
• The 51% equity means that foreign companies will have to necessarily tie-up with local companies.
• Markets will zoom if this goes through!

A thumbs down!

• What if the companies do away with the middle men but they themselves become like middlemen?
• Costs could come down initially but once the MNCs get their foothold, will they start dictating the prices?
• Will global companies have a monopoly over the supply chains?
• It could encourage more migration into cities as foreign retailers can come up only in cities with a population of at least 10 lakh.
• Small mom and pop shops, kiranas could shut down.
• Markets are sure to tank if FDI is scuttled.

The market is already celebrating an approval. Does that mean that companies will have foreign retailers knocking on their doors immediately the next day after the approval comes through? Not likely. The nod would be more psychological, making more of a perceptional difference. For us and the companies to see the changes, it will take over 6 -8 months. Infact the most awaited entrant, Wal Mart, when it entered China in 1996, expected good growth with a short time but it took more than a decade for the Chinese operations to become successful. Thus the likes of Wal Mart, Tesco, Carrefour could see become a reality in some states in India. And yes, we are sure to have visitors from other “opposing” states, coming down to shop at Wal Mart or Tesco.

We cannot fight development and live in a spaceship. The small retailers may or not be affected; we do not know. Thus to shun it without knowing is foolish. Computerisation in banks, FDI in insurance; almost each and every thing has faced opposition but today we clearly see that every water finds its own level. LIC feared that it would lose business if FDI in insurance was allowed; has that happened? Infact LIC has only grown stronger. The advantages of FD in retail, in terms of developing the infrastructure, building the much needed supply chains, direct procurement from farmers; all will lead to better development. India is too vast a country, with too many people thus fearing closure of mom-and-pop shops is being too naïve. Dubai, a city of malls has more small shops today than it did when there were lesser malls.

For the layman (in some states), what this news means is that there will be more malls, more choices, more shopping. This is the direction in which the world is moving today, either join it or get left behind. Can India afford to get left behind when we are already globally linked?