HOT-CAKE Through FDI in Retail

The retail industry is mainly divided into:-

1) Organized and 

2) Unorganized Retailing

Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

 FDI Policy with Regard to Retailing in India (GOVT. of INDIA Press Release)

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities.

a)      FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route.

b)      FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006 Series)

c)      FDI is not permitted in Multi Brand Retailing in India. (Till Now)

But Govt. is planning to :--

--FDI is permitted up to 51%, with Government Approval Route and subject to conditions  in Multi- Brand retail

--FDI is permitted up to 100%, with Government Approval  Route and subject to conditions  in Single Brand Retail 
SALIENT FEATURES:

-- Minimum Investment: Minimum amount to be brought in by a Foreign Investor would be USD 100 million.

--Unbranded Products: Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded.

--Agricultural Products: First right to procure agricultural products will lie with the Government

ü     Locations for Retail Sales:

ü       --Retail sales locations may be set up only in cities with a population of more than 1       million as per 2011

ü     Back-end Infrastructure: 

-       --At least 50% of total FDI brought in shall be invested in 'back-end infrastructure.

IMPACT OF FDI DOMESTIC RETAIL SECTOR:

Initially this will wipe out lot of unorganized and organized retailers from the business, because companies like WALMART , CARREFOUR, METRO, TESCO are very big organization and they can provide better goods and even cheaper than a local retailer due to deep pockets they have and their size which gives them a upper hand.  And if we talk about the creation of Job then it’s not even close to the retail set up India have at present if we go by statistics by National Sample Survey 2009-10 then around 40 million people are being employed under retail sector in India. But these BIG Shops will have a AVG. of  214 employees per store by walmart and if we talk about others then it’s even lesser . And mind it that it has only allowed in cities having 1 million population which counts to 53. So definitely it will not create that number of the job what at present scenario have.

  

But again being an INDIA my mind turns back and think that how many times I myself prefer to buy things from our near by Heritage fresher. If you track me then its would be 20-30 % times only. Unless we get something extra- ordinarily good we don’t accept new thing, because by nature we are very conservative.  Likewise as we are enjoying a weekly credit facility from our local keerana wala then why would we prefer WALMART or any other MART…Its again depends on person to person, our income level is going so as our expenditure. But that point have some weight on it that it need to be a big discount for me to go for a change.

IMPACT ON THE FARMERS:

Farmers is the main sufferer in the process of goods being produced and reaching to your home . If he gets  3 rupee for his produce then according to statistics you will buying it at 10 -12 rupees and rest is eaten up by the middle man. After FDI this will help farmer in getting a better price from the BIG CHAINS like WALMART and others. But farmers in india are small, some have even less than 2 hectare of land  and the brand like WALMART and others are very BIG they have more buying power. This might worsen the situation of the farmers. 

This is confirmed by international experience. A large number of members of the EU parliament adopted a declaration in February 2008 stating: “throughout the EU, retailing is increasingly dominated by a small number of supermarket chains…..............

evidence from across the EU suggests large supermarkets are abusing their buying power to force down prices paid to suppliers (based both within and outside the EU) to unsustainable levels and impose unfair conditions upon them”. This declaration came in the backdrop of protests by farmers against supermarkets across European countries like France, Italy, Netherlands, Belgium, Ireland and Hungary. The nature of the complaints were similar: the giant retailers were squeezing the prices paid to the farmers for products like milk, meat, poultry and wine, in some instances forcing them to sell at below cost prices.

Government need to look around it how it can carve out a way in between because both side farmer is the sufferer and if this keeps on going like this then soon people will stop doing farming.

BACK-END INFRASTRUCTURE:

 

Before Proceeding further lets be clear with the term BACK –END INFRASTRUCTURE :  Back-End Infrastructure‟ will include capital expenditure on all activities, excluding that on front-end units. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of back-end infrastructure.

 If we talk in INDIAN context then we topped the ranking among the countries where huge amount of food grains get wasted due to insufficient storage capacity. If we go by numbers then INDIA has 5381 cold storage (much smaller in size), with 4885 being in the private sector, 356 in the

cooperative sector and only 140 in the public sector and India’s food grains production is currently around 230 million tons and its total grain storage and warehousing capacity is only around 50 million tons. That too not maintained properly.

This FDI may help in built up the back-end infrastructure to a big extend. But a question comes if a company is investing in multi-retail segment of your country will also need infrastructure to operate, store etc……. So 50% money they will invest in back-end infrastructure, no doubt but they will use that for their own propose. Here, we need to see how much it will help for our domestic producers.

RESPONSE:

Small Traders and retailers are opposing it with a fear of being wiped out but on the other hand farmers are supporting it with full mandate. 

No doubt political parties are playing their role as they do in every issue either it be the ruling party or the opposition but before taking any decision our government should make it such that it would be beneficial for our country and society not the top brands who are waiting to tap the Indian market.

 Our neighbor, China opened up FDI in Retail in 1992,and  the sector has seen rapid growth, against the backdrop of increased market consolidation, higher production efficiency enabled by rising investments in rural infrastructure, and booming exports made possible by the setting up of new supply chains.(by  The Hindu).

Left and Opposition are opposing it and their point is that it will lead to unemployment, monopoly by BIG multinational and these will affect India in long run.

All responses are on table and India also has many example of China, Indonesia etc. from which it can get a clue and decide better. JAI HIND!!