"CSK players and support staff are distressed."
Stephen Fleming
"CSK players and support staff are distressed."
Stephen Fleming
The matter of FDI (foreign direct investment) in retail is best understood in terms of economics, although the FDI policy is a matter of politics. When one is talking about anything that has to do with economics, it is helpful to use a bit of common sense and to stick to the basics, as we will now proceed to do.
FDI in multi-brand retail is being opposed by some, including the BJP. The question of whether FDI in retail is good or not is being hotly debated. To the extent that the debate is related to the economics of organised retail and foreign investment in it, the debate is pointless because it takes only a few minutes to get to the heart of the matter.
Consider these fun facts.
Therefore inflow of foreign investments in retail is good for India.
But what about the millions of small kirana store keepers? Some of those stores will no longer be viable. Some — not all. Some of the people currently in the unorganised retail sector will find employment in the organised retail sector. Consequently, fewer people will be needed for the same volume of retail — which is another way of saying that there will be labour efficiency gains. Increased efficiency also means higher wages in the retail sector. That is good news. But wait, there’s more.
A growing economy implies that the retail sector will also grow. Given sufficient growth in the economy — which follows naturally under easily obtainable conditions – employment in retailing will grow even with increased efficiency in retail.
It is a mistake to consider the economy a static game. Economies are dynamic structures and it is possible to have changes that benefit some without hurting others. In other words, Pareto improvements are possible. (A Pareto improvement is one by which at least someone becomes better off without making anyone else worse off.)
An example of the dynamic nature of the economy is the telecom sector. At one time, it was feared by some that increasing the efficiency of the sector will lead to unemployment among the telecom labour force. As it turned out, those fears were unfounded since the growth in the economy, and therefore growth of the sector, saw an increase in employment together with higher wages. Not just that, it also led to cost decreases which are reflected in the low prices of telecom services we all enjoy.
The cost of retail is a wedge between the consumer and producer prices. Reducing the size of the wedge is good for everyone with the possible exception of those who gain from the inefficiencies of the current system. The losers will have to find alternative ways of making a living. But that is another story.
himanshu
September 15, 2012 at 5:54 pm
भारत की कोई कंपनी 1 करोड़ रुपए लेकर नेपाल जाती हैं ! वहाँ एक फैक्ट्री लागती हैं नेपाल के 100 लोग उसमे काम करते हैं !! एक साल बाद हमारी कंपनी नेपाल मे 11 करोड़ रूपये कमाती है और मान लो 11 करोड़ मे से वो 1 करोड़ रूपये के वेतन काम करने वालों को बाँट देती है !और मान लो 1 करोड़ रूपये का ही नेपाल की सरकार tax दे देती है !और बाकी बचे 9 करोड़ रूपये net profit भारत ले आती है !! तो फाइदा नेपाल को हो रहा है या भारत को ??????
BallMart
September 16, 2012 at 12:16 pm
Mandarin mein likhonge to hi samajh mein ayenga.
Siddhartha Chatterje
December 5, 2012 at 3:11 am
Bharat ko aur Nepal ko! Nepal ko ek crore extra tax mil raha hai aur 100 Napali ko job mil raha hai! Dono hi investment se pahele nehi tha.
dv-DivineVision
September 15, 2012 at 5:57 pm
Right now its a good move as its being done after giving sufficient time to internal players.
Get in the investment and the goodwill of Uncle Sam.
Ask him to help a bit in hi-tech transfer.
Twitanic(Anil Kohli)
September 15, 2012 at 6:04 pm
Sorry not a very convincing argument has been made out. FDI in retail has too many aspect to consider. Large buyer will squeeze prices from suppliers that is for sure.
Large size buyer will also dictate what they want to sell, hence production will be controlled. Only 30% need be locally sourced 70% can be imported is a sure recipe for disaster.
Having been a supplier to large large buyers both while I was in India & China, I have first hand knowledge how it will damage local manufacturing.
Lastly this has not been debated sufficiently in parliament or in public domain to be implemented with such great rush.
Once we have prepared a level playing field, this sector can be opened until then no.
elderflower
September 15, 2012 at 6:32 pm
Atanu has recycled economic theory as a failed argument. If fdi in retail is so wonderful, why have Germany and France restricted entry of Big Retail?
Millions of self employed mostly poorly educated people will be jobless, communities and local markets will be destroyed.
There’s a scam waiting to be exposed too. The govt wants to help its land grabbing allies Land sharks are ecstatic that their illegally acquired land banks can be sold off to big Retail for massive profits.
d2thdr
September 15, 2012 at 10:50 pm
If big retailers were so wonderful, tell me why the British hate their big 4 supermarkets- Tesco, Sainsbury, Morrison and ASDA are hated by 95% of the population.
Given time, Indians will come to hate their big 10 or whatever.
The world has changed and FDI in big retail will kill self employed small trader. It bodes bad for the society.
RAJ
September 15, 2012 at 6:32 pm
first article on niticentral that I did not like. not convincing at all.
BallMart
September 16, 2012 at 12:14 pm
Bhaat? Evlybody folgot Coalgate scam already? Now I understand why Man-mohan is smalt! Jai Hu!!
Prabhakar Reddy
September 15, 2012 at 7:33 pm
I am not convinced by the argument put forward pro FDI in retail.
Issue is not the FDI in retail, but the problem is lack of level playing field.
Will the Indian government ensure that small retailers have accesses to finances at par with big retailers ?
Will Indian government ensure the local vegetable vendors/grocer on trolleys have access to finances at par with big retailers?
Will the Indian government ensure that small retailers are not harassed day in day out for bribes?
Will the Indian government ensure that farmers have accesses to markets world over ?
There are numerous other issues.
Classical example I can quote from recent past ( I heard in one the speeches by Dr Jayprakash Narayana of Loksatta )is the plight of Palm oil farmers in Andra Pradesh.
A sad story but nevertheless a true story. The palm oil farmers were encouraged to plant palm oil plants but only later the government ensured no licenses were given to instal palm oil extraction units.To compound the problem GOI imported palm oil at much higher prices from Malaysia only to be sold at subsidized price in India. Our kings/ queens ensured Malaysian farmers reap profits at expense of locals!
With no income at the foreseeable future farmers saw the writing on the wall. They chopped off fully grown palm oil plantations to survive!
I am pretty much these stories will be repeated all over India.
I am for competition locally or internationally but will GOI ENSURE LEVEL PLAYING FIELD.I doubt it.
Malavika
September 15, 2012 at 7:39 pm
I think FDI in retail is a terrible idea. There is huge difference between theories/perception of arm chair economists and the entrepreneurs, business folks who actually walk the walk.
I am really disappointed with this article. There is no factual evidence of foreign big retailers reducing ” cost of retail … between the consumer and producer price” . In fact the opposite is true the consumers see no difference and producers like manufacturers, farmers lose out.
If these retailers(Kirana Shops) close, what will be the livelihood of lakhs of people where there is no social safety net. Aren’t farmers suicides terrible enough? It is not just traders, our artisans will be impoverished by likes of IKEA.
Malavika
September 15, 2012 at 7:46 pm
Those arguing for FDI in retail should explain how it benefits Indian farmers, manufacturers and artisans(Carpenters, etc). There is ample evidence of big box retailers pernicious effects on the local community.
US is suffering from the effects of huge trade imbalances, its unemployment is huge officially 9% (real 16-17%). In spite of zero interest rates the real economy GDP, unemployment is stubborn. The only result of zero interest seems to be increasing stock asset prices.
At least some US business men and intellectuals like Gross, Buffet, Grantham etc see the writing on the wall. I don’t see why we should adopt a failed Anglo Saxon model. Countries who managed to keep their manufacturing like Germany, France and Japan are doing ok. B.t.w they severely restrict big box retailers.
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anup nair
September 15, 2012 at 9:17 pm
The economic argument for FDI in retail is quite compelling. As far as the oft raised concern about the economic impact on small time retailers/kirana store keepers, they can also benefit if they can themselves get organised against the chain stores that the FDI will bring in. A successful example of one such effort is that of the IGA (Independent Grocers Alliance) http://www.iga.net.au/igafresh/index.cfm?page_id=2298 that is collaboration between wholesalers, retailers and manufacturers to compete effectively against the large retail chain stores with multinational presence. If such a thing happens in India then the consumer can benefit immensely by way of decreased prices, improved choice and higher quality of products and services as well as the quality of delivery of these.
anup nair
September 15, 2012 at 9:26 pm
A possible model of an alliance against big organised retail (like IGA as mentioned in my earlier post) can be along similar lines of Amul’s cooperative structure. This can only lead to increased competition and as a consequence better outcomes for the consumers.
Muthu
September 15, 2012 at 9:52 pm
A flaw in the argument is the size of the retail industry in India.. It is too huge and is the 2nd largest employer after agriculture.. In fact, number of people employed in retail sector is MORE than the number of organized sector employees in ALL SECTORS ACROSS INDIA put-together! So, to expect such a large segment to find “alternate employment” is text-bookish recommendation! Pls get your numbers right!
allwyn
September 15, 2012 at 10:08 pm
finally someone on niticentral makes a good point all other articles have the socialist framework also modi is against it – one more example modi is a good administrator but NOT a reformer!
Bhartiya Agnostic
September 15, 2012 at 10:28 pm
counter-funny facts
1) Germany is a developed economy and FDI in retail is not a buzz word there
2) Organized retail and FDI in Retail are not synonyms.
3) Yes organized retail requires investment ..so did unorganized Indian film sector a decade ago .If you insist that Indians are no good , then that itself would militate against the idea that that FDI in retail could generate jobs for locals ..right?
4)Please explain the debacle of south america due to FDI in retail. as Bibek ji puts it : FDI is not reform and reform is not FDI
5)India needs an efficient retail sector, manufacturing sector and almost any other sector.FDI in retail can/may hurt the other sectors.whats your analysis on that ?
6)If Indias domestic resources are insufficient , it becomes all the more important to asses how allegedly corrupt giants(like walmart) would not exploit this situation ..right?
sampath ramesh
September 15, 2012 at 10:35 pm
India is a different story. It is not a developed economy but developing. Again FDI only leads to MNCs (i am not opposed per se)dictating which are the products that can be sold and bought leaving tiny domestic products that are supplied to poor and low income group people vanish. Also u would appreciate that middle class is not upper alone. There are many levels in middle class itself. What about the fate of these people?.
We need FDI in electricity, roads, and other infrastructures that make the nation grow, not just robbers who swindle your wealth.
Be fair when u advocate these, Ahuluwalias and MMS theories do not do good for the country.
NK
September 15, 2012 at 11:35 pm
One question Atanu:
I am not against FDI retail per se. But where is infra to support big giants like Walmart. Suppose Bangalore gets 1 or 2 Walmarts at the outer periphery of the city. How is someone living in the middle of the city going to benefit from Walmart unless the transportation infra is up to the standards like in US? Only few living on outer periphery of the city, who can justify less travel time will benefit. Don’t you think what we need is good infrastructure in cities, let the local big retailers develop and then open the sector for foreign competition?
Thanks,
NK
LAKSHMAN
September 16, 2012 at 2:43 am
First article of NitiCentral that I didn’t like…
BallMart
September 16, 2012 at 12:11 pm
Great, we will now have WalMart itiyaadi. More exploitation of labour, all made in china product and all junk. So what is good in this FDI? Nothing. Our man-mohan has done this to take away focus from Coalgate! Great job Man-mohan.
Bobby
September 16, 2012 at 3:25 pm
Same here, first article of Niticentral I didnt like… I dont know where is Kanchan Gupta to let this horrendous and absurd point of view to be published.
vayu
September 16, 2012 at 8:42 am
Are TaTa, Ambhani, godrej re-incarnations of Mother Teresa? For all those who bleed their heart-out against FDI in retail should show equal negativity to all big indian companies currently in multi-brand retail. May be we should ban all indian run super-markets too. Oh by the way, lets stop building all malls while we are at that. There should also be a blanket ban on non-indian branded clothes (none of those bady jeans), accessories, electronics and definitely no hollywood movies and lays chips. No more foreign produced/researched/invented medicines – only ayurvedha/sidha/unnai (You can bleed to death or die of cancer but Mother india needs to be protected from foreign goods and capital).
Hypocrites.
Vivek
September 16, 2012 at 8:47 pm
1) First of all, I think there is enough domestic capital for retail. Its just that it does not want to go to work under the govt’s policies. Instead of the govt getting its act together, it wants to attract foreign bakras to invest. Or, so it thinks. Foreign capital is not treated well in this country. Just look at the foreign investors investing in Delhi airport, they have run away. And, there is an inherent anti-foreigner bias among majority Indians which is misused by politicians.
2) The govt can regulate how the investment is used. For example; I think the rule is that 30% needs to be invested in back end infrastructure. That is useful investment for sure, no doubts there.
3) The govt can control excessive profiteering and bad corporate policies. Unfortunately, we know that is unlikely to happen with a domestic or foreign company. So, when, not if, foreign companies are going to be caught in bed with the Indian govt. I’m going to caution in advance, that people will mistake that as excessive corporate rapaciousness by foreign companies, when it will actually be the govt who will be at fault for not regulating the foreign companies appropriately, and fairly.
V.N.Seetharam
September 16, 2012 at 10:18 pm
Of course it is good and best for the country. There is a perception that the loot of the country is reserved for the locals only as the influx of a foreigner will hurt our pride. It is perfectly fine having an immigrant Italian with sub zero education but with a Himalayan ambition to rule to be tolerated and venerated.
this apart it is sound economic policy to allow global entry in an open economic era.We are not back into the Nehruvian socialism which made us beggars for Horlicks,soaps and radio cassettes.FDI is a must and it is not going to make things worse as we are already in the bottom.
RC
September 16, 2012 at 11:56 pm
Shri/Shrimati BallMart said the above in comment expressing fear.
My question is : What kind of products are sold in India today ?? Arey .. even Ganesh idols are made in China …
Malavika
September 17, 2012 at 1:35 pm
I think the UPA II is looking at looming fiscal crisis, balance of payments problem. So in the short run it u=is trying to shore up foreign exchange through FDI . This policy will cause worsen trade deficit over medium and long term.
Just a couple of weeks ago UPA economic honchos were criticizing Indians for buying gold and causing deficit, but I guess buying ‘stuff’ that is ‘made in China’ from Walmart is ok. Some logic indeed.
Also, FDI in retail does not equal reform. Reform is badly needed in Labor laws, land acquisition act, pension etc. And modern retail does not equal FDI in retail. Several nations like Germany, France, Japan, S.Korea restrict big box retailers. There is no reason for India not to do the same, since it is in the interests of its people.
d2thdr
September 17, 2012 at 2:06 pm
You are right.
Thankfully, Indians love gold. So they buy even more. Compared to USA or UK, we are so much better off.
http://fofoa.blogspot.co.uk/2010/12/value-of-gold.html
http://fofoa.blogspot.co.uk/2010/06/how-can-we-possibly-calculate-future.html
Ghanshyam Sharma
September 18, 2012 at 6:33 am
Great piece Atanu, I completely agree with the article. People are forgetting that there was a similar opposition to computers as well. There was serious opposition when Vajpayee opened up the telecom sector. It is unfortunate that there are not enough institutions in our country where Indians can learn and understand economics. Whatever institutes are there are all bloody socialist and keynesian and that is why we Indians find it difficult to understand how free market works, despite benefitting from it for the past two decades.
Sudheer Mangalpady
February 22, 2013 at 6:44 am
Telecom sector is a capital intensive sector. That needs money from outsite. Kirana stores cant run telecom. Retail is pure real estate play…location and money power matters the most. Everyone sells the same horlicks bottle
Shib
September 18, 2012 at 7:55 am
Atanu, you are right FDI is multi brand retail is required but on the below terms. 1. FDI investment will be limited to 35% – 40%. 2. 80% of goods need to be manufactured in India. 3. There will be a independent semi-government controlled price regulatory mechanism like say SEBI (though it is not government controlled) which will monitor and prescribe prices of procurement between these retail giants and farmers. Also this entity will be allowed to take action against mal-practices. 4. The parent companies can take back 30% of their profits to their country of origin without having to pay tax whereas on the remaining 70% they will have to pay tax. 5. Mimimun labour generation by these companies per year will be mandatory. 6. There will be a regulatory mechanism which will monitor quality of the products being sold by these retail companies. 7. A much tougher consumer court which will monitor and take action on complaints against these retail companies. 8. A non politicized union for the benefit of the workers of these companies will be needed. 9. Predatory pricing to gain market share at the expense of small shops should not be allowed.
We should always bargain from a position of strength not of weakness as this current government is doing. So the current FDI proposal is not worth the salt it is being shown to be.
madhavan
September 21, 2012 at 10:10 pm
“The cost of retail is a wedge between the consumer and producer prices. Reducing the size of the wedge is good for everyone with the possible exception of those who gain from the inefficiencies of the current system.” — You are right, this is what one should experience. But the truth is that we have not seen this in practice when modern retail came into being in India. For now over a decade, but for an ‘Medplus’ exprience, all other modern retailers are selling products at MRP and still showing thier balance sheets in losses. Not really able to see the “increased efficiency”. If there is indeed improved efficiency, one should see it in drop in consumer prices as well as healthy balance sheets of these modern retailers. Neither of them is TURE, based on the actual data for the last decade for most of modern retailers as well as from the exeperience of common consumers. So, it is only changing of business from local small shopkeepers to large multinationals, every thing else looks farse.
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dark lord
October 2, 2012 at 8:46 am
A couple of points
a) No one seems to be arguing on behalf of the consumers of retail. It’s all about how the current employees of retail sector will be jobless. Its like arguing why we should ban computers because typists and clerks will be jobless and why we should reject cars as Tonga guy will be jobless. Both arguments have been made before in India
b) If 90% of the British hate organized retail and given time, Indians will also reject it, why are you worried. Let Indians reject it first
c) If organized retail is losing money in India, let it lose. It will definitely to the advantage of the unorganized player. Every player is in it for the profit (except government and hence it loses money consistently). Walmart, despite its deep pockets, will pull the plug if it is not profitable.
d) If FDI in retail is so bad, convince people not to shop there. Some countries have done it (including S Korea). Why are you constraining my choice between a foreign player, an indian organized player and an unorganized retailer.
e) I don’t foresee a reduction in prices of vegetables as they would still be under APMC act, which is the actual screw up
f) If US is a failed model, why are Indians so hell bent on migrating there. Surely, Indians are not Masochist looking to put themselves in pain. They are going there because of better living standards
g) Germany, S Korea and Japan keep their manufacturing jobs because a) they are very good and b) their citizens are interested in buying domestic products. Not because their government has banned foreigners from selling goods.
h) There is never going to be a level playing field. It was not there in 1991 when manufacturing was opened. In fact, the longer you wait, the worse off the domestic retailer would be as compared to foreign retailer.
In the end, I would suggest that we free the farmers and consumers from the tyranny of the unorganized retail. The unorganized retail in India highly inefficient, both in meeting the demands of consumers and quality of goods. It is a den of disguised unemployment.
Amit Kumar
December 6, 2012 at 1:42 am
A convincing case for allowing FDI in India, great work. Now if only more Indians could feel the same way.
Here’s an interesting piece that puts the FDI issue in some perspective: http://bartvandelay.blogspot.in/2012/12/fdi-in-india-is-terrible-ideanot.html
KK
January 10, 2013 at 7:57 pm
Great work, but consider these views to the contrary by a Nobel laureate and an IIM professor:
Joseph Stiglitz:
http://www.livemint.com/Politics/bGJefvzZ6xTKNtMFBKzofN/FDI-in-retail-may-not-help-farmers-Stiglitz.html
Prof Vaidyanathan, IIMB:
http://prof-vaidyanathan.com/2012/12/04/fdi-in-retail-facts-myths
A
February 13, 2013 at 8:14 pm
I personally do not mind FDI in retail. But what worries me is the 1%. Why do foreign companies want absolute control with 51% stake ? That is what was passed in the parliament – an absolute control of a foreign company having a business in India.
The Bharti-Walmart is already pricing out the local mom&pop stores, what’s going to happen when India is invaded by retail firms ?