The Hindu Business Line : No small dilemma

LAST WEEK, WAL-MART International's President and CEO, Mr John B. Menzer, had come a calling. His agenda was clear: The world's biggest retailer wanted to scale up sourcing substantially from India and the retail sector opened up to allow the company make "significant" investments in the country. With other larger retailers such as Kraft and Tesco also waiting in the wings, the clamour for opening the door will only get louder. While indications are that the Government will veer towards partially opening up Foreign Direct Investment in retail, the Commerce Minister, Mr Kamal Nath, has indicated that it would want to tread cautiously. For, the UPA Government's key outside supporter, the CPI (M), has already made clear that it would strongly oppose the move.

FDI in retail trade has been hanging fire for over four years now ever since a Group of Ministers of the erstwhile NDA Government reassessed the policy in late 2001 with the intent of opening it up. But that the sector still remains closed to foreign investment reflects the power of those opposed to the move. While this issue continues to be debated, the Government has allowed foreign investments in a swathe of sectors, from banking and telecom to insurance. Also, investments in wholesale-retail operations, such as what the German chain Metro has set up in Bangalore, have also been allowed. So, there cannot be any ideological reasons to prohibit FDI in retail. And, in any case, ever since quantitative restrictions were lifted on a variety of goods in 2001, there has been a crowding of products on shop shelves. All manner of foreign brands are already in, retailing their products through Indian-owned franchisees. Marks & Spencer's and South African supermarket chain, Shoprite, for instance, have set up shop in Mumbai via this route. So, FDI may be kept out, but not foreign brands and their purveyors. Opening up retail would only mean taking this a step further.

The retail trade in the country is worth around Rs 3,75,000 crore, employs some 50 million people, and contributes 11 per cent to GDP. Organised retail, on which the whole debate is focused, is only two per cent of this. One strong objection to opening the retail sector, which employs seven per cent of the workforce, is that it will lead to large-scale displacement of labour. Indeed this has happened in some countries like Thailand, where large overseas retailers have grabbed a chunk of the trade. But in the Indian context this argument is specious. If the argument is that large retailers with FDI can kill the street-corner store, so can home-grown brands such as Big Bazaars or RPG's Spencer's hypermarkets. Even this must worry only traders in some 20 top cities that multinational chains are likely to target, leaving much of the `other India' virtually untouched. For the consumer, if FDI in retail means lower prices, better services, and exciting products — as has happened in telecom — she would have no reason to complain.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
No small dilemma

Spectrum allocation — Disturbing the CDMA-GSM wavelength?

The curious rise of US trade deficit

NPAs in the shopping cart

One-size-fits-all approach may not fit

Get prepared to be impaired

Ignorantia juris non excusat

Listless lessons on corporate governance thru listing norms

Three cheers for the rebel

Stamp duty issues