FDI in retail is no monster

Nilabja Ghosh | Updated on March 12, 2018 Published on August 24, 2012

The impact of FDI on farmers and traders can be contained by ensuring that modern markets co-exist with co-operatives and traditional marketing systems.

The proposed policy to introduce foreign direct investment (FDI) in multi-brand retail is not just about changing the profile of our familiar roadside shops.

It also relates to transforming the lives of whole chains of human beings, and the operations of the agriculture sector as a whole. Therefore, the entire issue of reforms in agricultural marketing should be put in perspective.

The marketing system goes back to colonial regulations from 1928 to protect poor and illiterate farmers from powerful traders. Yet, agricultural marketing in India has not really come a long way.

Independent India’s government reinforced the system by consolidating the various APMC Acts and amending them occasionally when the system started to malfunction.

Amendments, however, could be made only by the State governments under the Centre’s advice. After over 20 years of reforms, it is time to effect some changes in this archaic system.

Those who oppose change see the livelihood of the traders as the most serious problem, rather than farmers’ interests.

This is because trading remains an easy option in an economy where employment opportunities are few.

Yet, the rigid regulations block modern technology and management innovations in agriculture. Farmers have very little choice other than to sell to traders on the latter’s terms.

Auctions in regulated markets are meant to ensure competitiveness, but not when money, muscle and informational power are with one party in the transaction.


It is said that the farmer receives unjustifiably low prices, sometimes not even 40 per cent of what the final consumer pays for the product.

Traders, impoverished of finance and ideas, also have little incentive to modernise and change their mode of operation.

Permitting new and organised business agents may help producers and consumers. The resulting value-addition adds to consumer satisfaction and improves remuneration to producers. Only the trader’s margins and unproductive marketing costs could be compromised.

The challenge is of moving ahead. It would be instructive to recall how retraining, redeployment and severance packages helped the downsizing of India’s behemoth public sector.

The difference this time is that the victims of positive changes are not public servants. The answer lies in compensating the affected people in some way. But how this can be done is the issue.


The risk that confronts farmers and their farming is much less debated. Numerous complaints are recorded in countries where market chains run by organised private sector operate. That only the higher quality products tend to be picked up, and the rest rejected mercilessly, creates inequality within the farming community.

While high-quality production requires investment, economic status is not necessarily a limiting factor.

In the case of apples in Himachal Pradesh, farmers in remote and higher elevation areas tend to be at an advantage, compared with the richer or more centrally located ones. And, small farmers need not be disadvantaged when contracts are made with farmer groups or via intermediating facilitators.

In Maharashtra, private companies provide marketing services to producers with informed guidance on reaching out to foreign markets.

With no firm evidence that opening the market would leave poorer farmers out in the cold, it cannot be taken for granted that foreign investment and expertise will make things worse.

The intention is to broaden the market with more options. There is, in principle, no reason why modern chains cannot co-exist with regular village markets, or other types such as cooperative purchase centres, the Mother Dairy-Safal type models and direct sales to customers or processors.


More serious complaints are made by agro-ecologists who observed that farmers working under contract gain more price security, but forfeit their freedom to make decisions.

This transformation of farmers among poultry and hog farmers in the US turned them into regimented assembly lines, from being entrepreneurs in independent family farms.

Not only does this undermine their self-esteem but concerns also arise about serious land, resource and food quality degradation, as experience-based judgment is replaced by instructions devised on commercial grounds by companies with no serious long-term interest.

The long-term vision of the business groups in operation will probably become the driving force of India’s future. Integrating the new market models with contemporary ideas of agricultural extension, in which the farmers are leading participants and sustainability is a prime objective, also becomes thorny.

Market intelligence, especially that relating to prices not only tends to become scarce but also irrelevant, when contracts are made in advance and products are highly differentiated and customised.

The private sector is not known for its contribution to free-flowing knowledge. Even today, despite all limitations, information relating to agriculture originates mostly in official processes of data keeping and the people’s right to information.

Thanks to government endeavours, some information on food stocks is available to facilitate planning for the coming year’s contingencies, when there is little or no record of private stocks.

Finally, the requirement for a really effective system of grievance redressal will be huge, as litigation amongst farmers, multinational operators and rival traders may swell in number. However, these concerns should not blind us to the positives of introducing FDI in retail.

Finally, the reforms in agricultural marketing could open up more options to farmers, the consumers and perhaps even to the much-sympathised trader in terms of livelihood choices.

The new system is likely to exploit their experience and expertise of traders. That competition can make the markets, even regulated markets, work more efficiently cannot be ruled out.

Indeed, there is evidence that the regulated markets in some of the partially reformed States have considerably improved their infrastructure and transparency and reduced malpractices.

(The author is Associate Professor, Institute of Economic Growth.)

Published on August 24, 2012
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