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The following points highlight twelve negative arguments of FDI in retail sector in India. The arguments are: 1. Job Losses 2. Drop in Prices 3. Monopoly Power 4. Killing Local Economy 5. Destroying Consumer Choice 6. Predatory Pricing 7. Market Distortions 8. Abuse of the “Buyer Power†9. Private Labels 10. Liability of Repatriation 11. Large Scale Entry of Foreign Goods 12. Initial Burden to Poor.
Argument # 1. Job Losses:
Entry of FDI and opening of Global multi-brand retail outlets (GMBRO) will lead to massive job losses as independent small stores-Will have to close their operation. As a result, there will be loss of job to unskilled workers. Thus allowing Wal-Mart like companies to expand their business may create few thousand jobs millions of job may be lost in the small trading sector.
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Argument # 2. Drop in Prices:
Big players like Wal-Mart’s efficiency at supply chain management leads to “direct” procurement of goods from the supplier. This may pave the way for deliberately dropping prices which may not benefit the farmer or the suppliers of Wal-Mart.
Argument # 3. Monopoly Power:
Big players in retail trade can afford to lower prices in initial stages even by dumping goods and may become monopoly at later stage and then raise prices. But as number of TNCs or big retailers will work together so establishment of monopoly will be difficult. Moreover, the competition commission will also look into the matter to control such menace.
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Argument # 4. Killing Local Economy:
With the entry of large efficient retailers, the corporate profits, so earned, may not be spent in the areas where they are generated which may lead to killing of the economy.
Argument # 5. Destroying Consumer Choice:
Entry of giant retail players gradually destroy the consumer choice and the market may be reduced to competition between a handful of brands and logos.
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Argument # 6. Predatory Pricing:
Corporate big retailers way resort to predatory or below cost pricing to attract customers initially but then jack up prices at a later stage so as to transfer the burden to the consumer.
Argument # 7. Market Distortions:
Entry of TNCs in retail sector can distort the market by absorbing the big initial losses but may resort to non-competitive practices. Thus it would not eliminate middleman rather introduce new ones like buying agents, processors, standardizers, packagers, quality checkers and certification agencies.
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Argument # 8. Abuse of the “Buyer Power”:
There are constant fears of abuse of the “buyer power” of giant retailers which are not imaginary. The centre for Research on Multinational Corporations in its report observed such widespread abuse in the European Union. There are instances of “retro-active payments”, “late payments” etc. which enable super markets to gain profits at the cost of suppliers. The same buyer power may also affect consumer interest.
Argument # 9. Private Labels:
Supermarkets in India are increasingly selling goods under “private labels”, i.e., products with their own brand labels that has created new opportunities for suppliers. This products are mostly cheaper. Accordingly, supermarkets can threaten both branded products supplier and private label producers through delisting. They decide on their own interest, “what product will be sold.”
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Argument # 10. Liability of Repatriation:
FDI in retail will be a liability of foreign exchange as the profits so earned will have to be repatriated. Such large scale repatriation may lead to current account deficit in trading accounts.
Argument # 11. Large Scale Entry of Foreign Goods:
FDI in retail will lead to large scale entry of foreign goods, from cheaper destinations like China with a set of logistical management process and thereby help China to keep their industries running. As a result our domestic product will lose market.
However, this may not be true for India as government can fix the extent of procurement of imported products and domestic products by the global retailers (as in case of India 30 per cent procurement of Indian products by global retailer has been made mandatory. However, this issue needs to be monitored very carefully.
Argument # 12. Initial Burden to Poor:
Entry of global retailer may pose as problem to the very poor people, landlers farmers, petty small traders in the initial transition period. In order to protect this class of people both the government as well as big retail players will have to take responsibility to protect the interest of this poor people and also to engage them effectively.
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