FDI IN MULTI-BRAND RETAILING

India, country home to 1.2 billion people and second most populous country in the world is the biggest market after China . The retail market is expected to worth over $1000 billion in 2011-12 . Ever since India opened its gate for the global investors in 1991, investment from global MNCs and investors have kept pouring in. Since 2006, FDI in the retail sector was limited to 51% and that too in single brand retail allowing only few global brands such as Nike, Louis Vuitton to enter into the Indian market through joint ventures.FDI in multi brand retail was not permitted which meant that giants like Wal-Mart and TESCO could not enter the market. But, on July 26 the government gave permission to long standing demand of 51% FDI in multi brand retail but with minimum investment condition of $100 million opening the gates for Wal-Mart, TESCO and other giants in the sector.

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Now, the big question is what will be its impact on India. Over the years, politicians and owners of kirana stores have spoken negatively on this issue. They have been the major deterrents for FDI in the multi brand retail citing unemployment and loss of business as the issue. What needs to be understood here is that every coin has two sides. Allowing FDI in this sector may have some negative impacts but this will be outweighed by the positive impact it will have. The biggest impact of FDI in this sector will be on the farmers and rising food inflation. As per a report in 2010,about $1 trillion dollar of food goes waste in India because of poor supply chain Infrastructure. Also when it comes to paying farmers India is far behind. Indian farmers gets only one-third of the money for their procurement . FDI will bring in investment which will improve the infrastructure needed for storage of the farm produce, cold chain and post-harvest infrastructure which will lead to a larger shelf life for the items and lead to decrease in price benefitting the consumers and providing higher income to the farmers for their seasons harvest.

FDI will increase the competition among the current players as they will crave to create a stronghold in the market. Increase in capital flow will allow the existing retailers to improve technology and management systems. It will allow the existing players to compete better with global competitors leading to economic development of the country through reduction in wastage of time, money and production costs. Also FDI will improve labour skills, upgrade agricultural sector, and bring efficiency in small and medium enterprises resulting in increased GDP and generation of employment opportunities in the organised retail. FDI in retail trade will speed up the growth of the organised retail sector which is still under-developed. The agricultural sector will improve driving growth, employment and economic prosperity in rural areas of the country. Allowing FDI will reduce inflation as it will lead to decrease in prices of the products thus increasing the purchase power of the consumer. Overall FDI in retail sector would ensure that the back-end and front-end infrastructure of the economy would be greatly improved. While FDI in the sector is presenting a lot of advantages there are some issues also related to it. This policy if in effect would lead to unemployment of as many as 40 million people involved in the unorganized retail sector. Unorganized retail is important from an employment perspective, because for the unemployed, it is the default sector of employment. As much as 14% of our employment comes from the retail sector, second only to agriculture. Small retailers who are in the vicinity of large retailers will be impacted. There is constraint in the availability of capital which is the major setback for the small retailers. Though considering the issue related to unorganized retail sector puts a negative impact on FDI and the organized retail as a whole but there is a way out of that. In 2008,spencers opened its outlet in a locality in Kolkata. There was a lot of hue and cry from small kirana stores selling Agri-foods about the impact it will have on the business but the issue finally got settled when the government intervened and an amicable solution was identified. As per the agreement, Spencers will not be able to sell below 3 kgs of a product. So, if tried the impact on these unorganized retail players can be nullified with a logical thought process helping both the parties involved. Overall it can be said that though allowing FDI in multi-brand retailing does have its fair share of negative implications but the positive impact it will have on the growth of the situation of the economy as a whole far outweighs the negatives. It will lead to introduction of advanced technology and employment opportunities, improvements in the back-end infrastructure, logistics and improved supply route management as well as better management practices.FDI is thus a necessary act to be carried out by the government, which would ultimately lead to the development of the nation in terms of its GDP, low inflation, improved standard of living, infrastructure, logistics, etc. Therefore FDI in multi-brand retailing is a must and the government has taken the correct decision by allowing it. References: 1. http://en.wikipedia.org/wiki/Retailing_in_India 2. http://www.deloitte.com/in