FDI in Retail: My Apprehensions

It appears that the political turmoil and protest after the September surge or rush of policy announcements of Manmohan’s government are unnecessary so far the opening up of the multi-brand retails is concerned.

As revealed, NDA during its regime was ready to bring FDI in multi-brand retail and had prepared a detail cabinet note that is now in hands of the present government and so also that Manmohan Singh as the leader of opposition was against the FDI and had written a letter in that regard. BJP has the letter of Manmohan Singh. Today both have changed their mind. Is it a natural change of views? If yes, it is good. But then both the parties should not have any grudge against each other. However, the issue is not that simple.

I was in favour of the big MNCs coming to India in retail in 2006-7 after I had seen its outlets during my long US stay. And one can read many of my entries of the period on dritikona.com. But today I have many apprehensions.

One must appreciate that no MNC will enter India or, for that matter, any country unless it finds the prospect of adding to its bottom-line soon enough. If Wal-Mart or any other MNC in retail comes and invests in India, it must have decided its business plans and would have seen good business prospect… It will come to earn for itself and its shareholders and not for buying offering the best price to the producers and for selling at cheaper price. It can neither be forced to buy straight from the farmers, nor invest in cold storage and other infrastructures unless it justifies its business volume.

Chidanand Rajgatta of ‘The Times of India’ has presented the case nicely in his article. Wal-Mart quality wise is considered at the lowest in US. I don’t think Wal-Mart is very popular destination of the households for perishable items such as vegetables and fruits. I also don’t know how much it has invested for avoiding wastage of the perishable commodities in US or in other countries.

My objection is against the way the ministers including the prime minister are putting all the positive aspects of this policy decision, as if in one stroke it will eliminate all the intermediaries, cut the wastage due to rotting of the perishable items, and provide huge employment. One is not sure if many MNCs will rush to India. It will be better for the government to open the retail too few players only and see how it works. The government must encourage the domestic players so that one of them can become Wal-Mart tomorrow.

I am against it for two other reasons. First, the retail companies will need only low skill people for employment. Second, the retail is one of the most popular choices of even the common men in neighbourhood to become entrepreneur. That lot will certainly get discouraged.

Historically, the today’s trader becomes tomorrow’s manufacturer. There are many examples. With the opening of retail to MNCs, the future of the growth of the manufacturing in small scale will be dim. India will not be able to compete in low cost manufacturing of simple household items; and the MNCs will certainly source them from their already developed global vendors. India needs the huge growth of low-cost, low-skill manufacturing even reaching rural India to keep the large addition of employable population engaged.

My main request to the economist prime minister is to take it easy and make it acceptable rather than forcing it to the people.

Interestingly, the intellectuals and economists of the country are clearly divided in two camps one supporting it and the other opposing it. It has made the people confused. Even the common people are divided.

Why couldn’t Manmohan go for a debate on each of the issues of FDI in retail with the leader of opposition on national TV channel? It will provide an opportunity to the country men to know the views of both the sides and make up their minds. A good democracy certainly can expect this little favour.

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