Does India need FDI in retail sector?

economy FDI in RETAIL

Answer by Jayasankar Thayyil:

Retail is the pillar of any economy of the world. In India it contributes 14%-15% of the GDP and employs around 40 million Indians ( 3.3% population). With population of more than 1.2 billion, it has a bright future , but reforms needed to develop these sectors are opposed by our opposition and coalition parties by quoting baseless reasons.

There are two types of retailing sectors: organized retail sectors and unorganized retail sectors. In India majority are unorganized retail sectors which are owned by family members and organized sectors contribute only 4% of the market. In unorganized sector farmers produces the product which reaches the consumer through the middleman. Middleman dominated Indian retail sectors for decades till 2010. They are accused of several allegations which includes lack of transparency in prices of the products and farmers getting only 1/3rd of the price paid by the consumers.

Until 2011, no FDI was allowed in multi brand retail and single brand retail was allowed with only 51% ownership. But in January 2012, after much deliberation and persuasion 100 % FDI was allowed in single brand retail and 51% was allowed in multi brand retail. But states ruled by our opposition and coalition parties organized a nationwide bandh protesting against their reforms. They put down several problems these reforms would bring if it is implemented. But surprisingly, all these reasons are untrue. let me quote you some of the reasons told by our opposition leaders and I will also tell you what actually the situation is :

1)     Oppn viewpoint : Independent stores will be closed leading to massive unemployment. Walmart (multi brand retail) employs very few people in USA.

 Counterpoint :  Organized retail need workers. It employs about 1.4 million in USA (300 million population) . So if Walmart is allowed to expand in India as much in USA, it would employ 5.6 million people. And additional jobs will be created during the building of infrastructure like roads, malls etc.
In china after allowing FDI reforms employment rate jumped from 4% in 1992 to 7% in 2001. And small retail shops also grew over by 30% in 5 years.

2)   Oppn viewpoint : small retailer and middlemen plays a large part in local economy. Walmart will lower prices to dump goods , get completion out of the way, becomes monopoly , and then raises prices.
Counterpoint :  Walmart like companies will not become monopolies because there would always be competition among them. These competition would ensure that food prices will be in check.

3)   Oppn viewpoint:  Like east india company they could take us politically.
Counterpoint : comparing 18th and 21st century is unfair. India wasn’t a democracy then. Even countries like china, malayasia and Thailand allows it. Then what is the harm in implementing it in india.

In addition to these advantages , other benefits given by reforms in organized sector is:
1)     Indian economy is small. Global investment is very necessary . and it will also open markets for Indian goods abroad.
2)     It will reduce wastage of foods.
3)     Small shops employ workers without contract and make them work for long hour. These can be abolished. And child labour can also be reduced.

Farmer groups around the country, economists and entrepreneurs support these reforms. Countries like Canada give credit to Walmart like companies for their single digit inflation. I think time has come for India to include these reforms as fast as possible because our inflation rate is been in double digit numbers for while.

Does India need FDI in retail sector?


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