FDI IN RETAIL: Real Stimulus or Convenient Solution

INTRODUCTION
Foreign Direct Investment is the most preferred
form of investment since it is considered to be the most beneficial form of foreign investment for the

economy as a whole.
It is targeted at a specific enterprise, with the aim

of increasing its productivity or changing its

management control.

FDI in multi-brand retail can Attract huge investments in the retail sector Create retail. employment opportunities in agro-

processing, logistics management and front-end

Help farmers secure remunerative prices by

eliminating exploitative middlemen. Bring in investments in back-end , considerably reduce post-harvest losses

FDI would also Lead to large-scale job losses. Invariably displace small retailers. Global retail giants would resort to predatory pricing.

Issues Plaguing the Economy

Euro Crisis fears Current account deficit of 4%

Impending fears of a double digit High Inflation

Corruption in governance Lack of political will Globally-acclaimed India growth story seems to be heading for an unhappy ending.

1991 Reforms
Balance-of-payments crisis Main objective then of reforms was to eliminate the

administrative shackles of the license raj

The main sectors where reforms took place after 1991 were the external sector, industry and the financial sector. The major sector left out was the agriculture sector Agriculture sector categorized as a state subject

BARRIERS IN REFORMS
Agriculture being a state subject ,overlooked by majority states.

In case of FDI in retail, new storage facilities would be

developed thus reducing wastages. However, it is not clear why the domestic players in multibrand retail have not developed these facilities - if profitable over the last decade or so, and why foreign investors would suddenly jump into this high-cost activity. .

 The ability to buy food grain for stocking would also be stymied
by state APMC Acts - still applicable in most states. There is the additional problem of a ban on inter-state movement of food grain. Bottom line: It is necessary to remove administrative controls on the agriculture sector As in the other sectors, this will create the economic conditions

whereby issues like FDI will find less political resistance.

ARGUMENTS
Argument 1: FDI in multi-brand retail will reduce inflation. FDI in multi-brand retail will eliminate the 40% wastage of food grain that currently occurs After almost a decade of domestic organized retail and huge tax breaks for investment in warehouse facilities, such facilities have failed to materialize. Lack of this investment is more due to the controlled

nature of agricultural production than lack of foreign

investors

Argument 2: FDI in multi-brand retail will give more

remunerative prices to farmers

the APMC Acts require the sale and purchase of farm produce in government-designated market In this rather unfair non-competitive market, there is nothing to ensure that farmers will get marketdetermined prices. The monopoly power of wholesale buyers having

strong political support.

Argument 3: FDI in multi-brand retail will lead to loss of jobs in kirana stores Firstly, organized retail accounts for only 5% of total retail sales

the shift to organized retail normally occurs in response to

increase in labour costs. Today, even in large metros, the kirana stores provide

personalized services which no organized retail can match.

It is an insult to the intelligence of consumers to assume that they will suddenly undertake costly and time-consuming

retail purchases simply because foreign investors are here.

REALITY CHECK
Excessive focus on FDI in multi-brand retail would seem to indicate that it is the principal instrument of reform, which it certainly isn't. Income levels in India cannot support a wide spread of organised retail

The political opposition that would follow (which it has!)

would then give greater ammunition to opponents of the reform process.

 Arguments in favor of FDI lie in the field of technology and competition. In other words, FDI allows access to technology

not easily available.

Much of this technology spread comes via

spillover benefits to local firms.

Even more important, FDI provides strong

competition to local companies.

THANK YOU
Presented By

-Ashish
-Devina -K Soumya -Prerana -Swetha -Shravan