The following points highlight the fifteen positive arguments of FDI in retail sector in India. Some of the arguments are: 1. Address Supply Side Problem 2. Generation of Employment Opportunities 3. Boost Investment in Agricultures 4. Investment in Back-end Infrastructure 5. Knowledge and Global Integration 6. Reducing Inefficiency and Others.
Argument # 1. Address Supply Side Problem:
Entry of FDI in multi-brand retail trade will address supply side problem. Growth of Income has brought about much larger gap between production and consumption. Such gap can be met by larger volume of investment in infrastructure like integrated storage, transport linkages, cold storage, technological upgradation etc.
Argument # 2. Generation of Employment Opportunities:
Entry of FDI into multi-brand retail sector is likely to generate large number of employment opportunities in India. Organised large scale retail trade has scope for larger number of jobs. FDI in multi-brand and single brand retail sector is likely to create as many as 10 million jobs in a span of 10 years, making it the largest sector in organised employment.
According to India staffing Federation, an apex body of the flexi staffing industry in India, FDI in retail can create around 4 million direct jobs and almost 5 to 6 million indirect jobs including contractual employment within a span of 10 years. In USA, Wal-Mart, the giant retailer, employed 1.4 million people. In India, Wal-Mart is likely to employ 5.6 million Indian people if they can do same scale of business in India.
More additional jobs will be created during building of retail stores cold storages, software makings, electronic cash register entry and other works. Thus FDI in multi-brand retail would in no way endanger the jobs of people employed in the unorganised retail sector of the country.
Rather, it would create millions of job opportunities as massive infrastructure capabilities would be required to meet the changing life style needs of urban people of India who is quite keen on allocating a good portion of their disposable income towards organised retailing over and above their purchase from local Kirana stores.
These Kirana stores would be able to survive in retaining its customers because-of their unique characteristics of convenience, close proximity and relations and skills in retaining customers. In smaller towns and in rural areas, these Kirana stores would be able to spread its base deeply.
Thus FDI in the fast growing retail sector wall significantly boost hiring activities and has the potential to create about 80 lakh jobs in the country.
Argument # 3. Boost Investment in Agricultures:
FDI in multi-brand retail sector will boost investment in agriculture Noted farm scientist and father of green revolution in India M.S. Swaminathan supported the government decision to allow 51 per cent FDI in multi-brand retail on the ground that it will open scope for raising investment in rural areas.
He recently observed that “Agriculture in rural India is crying for investment. Whether home investment, international investment, UN bodies, World Bank agriculture and rural occupations are crying for those investment. Any investment that can stimulate agriculture is welcome.”
He also suggested that the states going for it should devise safeguards to protect the interests of the farmers. In order to get the regular and sufficient supply of farm products for their stores, the multi-brand retailers are likely to establish link with farmers and go for contract to produce and supply their required products and also advance loan to the farmers to produce those goods in required format and quality.
Argument # 4. Investment in Back-End Infrastructure:
Entry of FDI into multi-brand retail will lead to flow of investment in back-end infrastructure. As per the Government policy announcement, at least 50 per cent of FDI should be invested in ‘back-end infrastructure’ within three years of the first tranche.
Thus entry of FDI in retail sector will develop cold storage chain, strengthen supply chain infrastructure for all products, ranging from integrated storage to processing and manufacturing infrastructure, transport linkages, technological upgradation etc. which would stop wastage of agricultural produce at farm level or can reduce post-harvest losses.
As a result of such entry of FDI, logistics and supply chain companies are expected to grow as they will be the link between small manufactures, producers and farmers and the organized retail chains and thereby help them to get higher returns for their supplies.
Moreover, it is not possible for the government to make such a volume of investment for the development of such back and infrastructure on retail sector as it has to invest a lot in infrastructure, hospitals housing, education etc. Thus in this regard, FDI in retail has no alternative.
Argument # 5. Knowledge and Global Integration:
Indian retail industry needs knowledge and global integration. Leading global retail players can bring it and can also open global export market for Indian farmers and producers.
Argument # 6. Reducing Inefficiency:
FDI in multi-brand retail will help reduce inefficiency in retail business and thereby benefit both consumers and farmers. Thomas Lairson, Professor of international business, Rollins collage, US argued that India should learn from the experience of China, Japan and Brazil, whose economics have benefitted from FDI in retail.
Opening of retail sector in India will lead to potential reduction of inefficiencies in that sector. Referring to the Chinese experience Prof. Lairson noted that FDI intensified the competition in China’s market, improved the efficiency of the economy, and propelled state-owned enterprises to reform and China’s transition to a market-oriented economy.
In 1970, imports and exports together constituted just 5 per cent of China’s GDP but it rose significantly to 65 per cent of GDP in 2005 due to significant opening of the economy. China thus shifted from extremely closed to the most open large economy in the world and attracted cumulative FDI of over $ 1 trillion between 1979 and 2011.
Again referring to the Japanese experience, Prof. Lairson noted that significant protection of small and inefficient retailers and small farmers raised prices of the products and created a large and in inefficient sector of the economy.
Argument # 7. Reducing Price Level:
FDI in retail can reduce the price level in a country if its works under competitive scenario. Large number of global retail companies (350 retail companies) viz. Wal-Mart, Carefour, Tesco, Target, Metro, Coop etc. working since last 30 years in different countries could bring competition in the market. It could keep food prices lower.
As for example, Canada could attain lower inflation due to Wal-Mart effect. Price inflation in these countries has remained much lower than in India.
Argument # 8. Benefit to Consumers:
As a result of entry of FDI in retail sector, consumers in general will be benefitted due to reduction in prices and they will get the access of better quality products. Consumers will have more options and Choices.
Argument # 9. Remunerative Prices:
FDI in retail can assure better or remunerative prices to farmers of their products and can eliminate middlemen from agricultural market. Until 2010, intermediaries and middlemen have dominated the value Chain in India, flouting all norms.
Small farmers in India realize only l/3rd of the total price paid by final Indian consumers as compared to 2/3rd of the price realised by farmers of those nations having higher share in organized retail.
Argument # 10. Knowledge and Technology Transfer:
Global retail players will arrange transfer of better knowledge and technology to farmers for improved farming and Organic farming practices resulting improvement in both yield and quality of farm products.
Argument # 11. Benefit to Small Producers:
Entry of FDI by transnational corporations (TNCs) in retail sector will also benefit small producers and businessmen Giant retailers will buy cosmetics, toiletries, garments, leather products, processed foods, spices, pickles, jam etc. from small producers.
Thus there will be increase in the demand for products produced by these domestic small producers and thereby the retailers will establish free trade and provide marketing support to these producers both within and outside the country to sell their products at remunerative prices.
Argument # 12. Benefit by Integrating:
By welcoming FDI in retail sector, India will benefit by integrating with the world rather than isolating itself. China with over 57 million square feet of retail space owned by foreigners, employing millions of Chinese Citizens has not become a Vassal of imperialists.
It enjoys considerable respect from all global players. Other Asian countries like Malaysia, Taiwan, Thailand and Indonesia also see or consider foreign retailers as catalysts of new technology and price reduction and they have been benefitted immensely by allowing FDI in retail sector;
Argument # 13. Ploughing Back Profit:
With the entry of 51 per cent FDI in multi-brand retailing half of the total profits earned thereby will remain in India. Moreover, taxes on profit will also improve the revenue receipts of the government and thereby can reduce its budgetary deficit. Moreover, half of the profit remaining within the country may be ploughed back for further investment within the country.
Argument # 14. Checking Wastage in Distribution:
In India, the problem of inbuilt inefficiencies and wastage in distribution and storage is quite serious in nature. As per some estimates, as much as 40 per cent of food production does not reach consumers. Food often rots at farms level, in transit or in antiquated state-run warehouses but large number of children in India are malnourished.
Thus organized and cost conscious retail companies will be able to avoid such waste and losses making food available to the weakest and poorest segment of Indian society at an affordable price and can also increase the income of the poor farmers. Moreover, healthy food will become available to more households.
Argument # 15. Better Job Conditions in Retail:
Workers engaged in Indian small shops are employed without proper contracts, making them to work long hours and at lower wages. Many unorganized small shops depend on child labour. Thus a well-regulated retail sector can be able to reduce those abuses and jobs in the organised retail can also pay well.
For all these possible opportunities, to be attained from the entry of FDI in retail sector, the government have to be proactive for bringing necessary changes with the changing situations.