A keenly debated topic, I don't think it needs an introduction. UPA government's suggestion to allow FDI in retail has caused quite an uproar.
The segment most affected by this move is the retail section-the kiryana store owner who runs his shop in the nearby market. They fear that the predatory nature of chains such as Walmart would eat into there business and leave them without any livelihood. Fair point, this. But what they miss out on are several invisible points. Stores like Walmart require a huge land area. They are typically built on the outskirts of the city. With the price of petrol touching sky, who would bother to drive and buy stuff from here even if they are at a discounted price? Ahh...the predatory pricing...what we tend to forget is that while these big stores have to pay sales tax, the local kiryana store can easily escape it. So even by giving lesser discounts, these small-time retail stores can survive. Add these arguments and the shopkeeper's nescient arguments lose their base.
Now lets look at why we need FDI in retail. India is world's second largest producer of fruits and vegetable. Sounds great, no? But what do we do with it? We have a very poor cold storage infrastructure. This means that there is a great loss of food both in terms of quality and quantity due to inadequate facilities for storage. The end loser here is the farmer who does not get the price he deserves. Coupled with the intermediaries who flout all kinds of rules, the farmer bear the brunt of losses, earning less than half of the price that you or me, as customers pay.
By removing this chain of intermediaries and coming up with there own storage system, it is the poorest that are bound to gain the maximum. And for normal customers, this step would ensure a better quality product at a competitive price. And lest we forget, in these times of financial uncertainties and the continuous weakening of rupee, injection of foreign investment would be a shot in the arm for the economy.All in all, a win-win situation. But unless the UPA allies like Trinamool Congreess remain stubborn, the dream in the poor man's eye would always lie beyond the horizon.
The segment most affected by this move is the retail section-the kiryana store owner who runs his shop in the nearby market. They fear that the predatory nature of chains such as Walmart would eat into there business and leave them without any livelihood. Fair point, this. But what they miss out on are several invisible points. Stores like Walmart require a huge land area. They are typically built on the outskirts of the city. With the price of petrol touching sky, who would bother to drive and buy stuff from here even if they are at a discounted price? Ahh...the predatory pricing...what we tend to forget is that while these big stores have to pay sales tax, the local kiryana store can easily escape it. So even by giving lesser discounts, these small-time retail stores can survive. Add these arguments and the shopkeeper's nescient arguments lose their base.
Now lets look at why we need FDI in retail. India is world's second largest producer of fruits and vegetable. Sounds great, no? But what do we do with it? We have a very poor cold storage infrastructure. This means that there is a great loss of food both in terms of quality and quantity due to inadequate facilities for storage. The end loser here is the farmer who does not get the price he deserves. Coupled with the intermediaries who flout all kinds of rules, the farmer bear the brunt of losses, earning less than half of the price that you or me, as customers pay.
By removing this chain of intermediaries and coming up with there own storage system, it is the poorest that are bound to gain the maximum. And for normal customers, this step would ensure a better quality product at a competitive price. And lest we forget, in these times of financial uncertainties and the continuous weakening of rupee, injection of foreign investment would be a shot in the arm for the economy.All in all, a win-win situation. But unless the UPA allies like Trinamool Congreess remain stubborn, the dream in the poor man's eye would always lie beyond the horizon.
hey Aman, great post!
ReplyDeleteThough I feel that the first argument you mentioned is somewhat debatable, even though the facts are absolutely valid. I think that its not quite correct to say that those stores will be on outskirts and thus save the locals, as consumer won't go there. Secondly to say that small shop owners can easily get away with the taxes is also somewhat flawed, as not all of them do that and also the wholesalers who were protesting against FDI are big traders and most of the time I find them paying the tax receipts.
I agree with you on rest of the points, but seeing the political drama, its likely that FDI cab only be introduced in parliament in/after budget session.
Great start as a first post.... :)
Thanks.
ReplyDeleteThe points that I put in are some conjectures that I , for one, believe are possible. And yes, I agree with what you said about wholesalers. But the retailers and the small shop owners, I am inclined to guess still do away with the taxes.
And about the location of store point, Walmart is a huge store. I have been to one and they require a big area. In big cities(where these big chains can open the store), finding such a place inside a city is going to be an arduous task.
Good article. Clear articulation and lucid language. Keep going
ReplyDeleteNice Post Aman and I agree with ur views..
ReplyDeleteI'd like to add my own views to ur post which is, i blv, one of d mosts debatable topics nowadays, and as u said doesnt needs an introduction.
As the issue of 100% & 51% FDI in Single & Multi-brand retail resp goes, its definitely gng to impact the Indian economy..n India will definitely suffer from it in case another situation of double-dip recession, ie; if the situation like 2008 comes again..but its quite important that inflow of foreign funds should b there.. Having said that, wat i think is that there's no point of having 100%FDI in such things as it'll definitely impact the traders n common ppl.. There should b some public holding as well.. and I am not saying abt single brand retailing only, but in other complex sectors, such as that of the aviation..
Many ppl may link FDI with the depriciating value of Rupee, but i think that there r many factors which affects the rupee against the dollar, and certainly the above is one of them but not the only one.. I wud rather say that the fortunes of India turned in 1991 wen it adopted the policy of entering global market..n one may check d facts of the last 20 years n compare it with initial 44 years after independence...
its a nice read and most of what u have written is agreeable.
ReplyDeletefor the record when reliance fresh came into existence there was a similar uproar but as time has testified everything has settled down .
also people these days are increasingly buying from colony markets to get better and timely services .
I completely agree with the above point. The need of the hour is to get some foreign investment injected into the Indian market to arrest the slide of rupee, and by not allowing the government to pass the bill, the opposition has made a huge blunder.
ReplyDelete