Thursday, September 20, 2012

FDI in RETAIL in INDIA: A STEP in RIGHT DIRECTION

The government of India has at last woken to the need of some policy reforms and has started with the FDI in retail and aviation which do not seem to fall in line with the vote bank politics of almost all the opposition parties of the country.Let us be reminded that many of them fought tooth and nail in seventies and eighties of the last century against mechanisation in farm sector, computerisation of the workplace including banks, railways etc. etc. by saying that these steps will increase unemployment. Today also we are no different and most of these parties who only believe in redistribution of already created wealth for bringing in prosperity rather than propelling wealth creation.Recently an article titled FDI in retail: made in united states has tried to project a lop sided picture of FDI in retail and this forms the basis of resistance by the opposition polity of the country who are only looking for some vote catching matter to fool the gullible citizenry of India.
Retail activity in a market covers following areas

 Fruit & vegetable sellers – Sells fruits and vegetables.
 Food stores - Result of bakery products. Also sells dairy and processed food and beverages.
 Non-Vegetable Store - Sells chicken and mutton.
 Kirana I - Sells bakery products, dairy and processed food, home and personal care and beverages.
 Kirana II - Sells categories available at a kirana I store plus cereals, pulses, spices and edible oils.
 Apparel - Sells men’s wear, women’s wear, innerwear, kinds & infant wear.
 Footwear - Sells men’s wear, women’s wear, kid’s wear
 Consumer durables & IT- Sells electronics, durables & IT products.
 Furnishing - Sells home lines & upholstery.
 Hardware - Sells sanitary ware, door fitting, tiles.
 General mechanize - Includes lighting, stationery, toys, gifts & crockery.
As it is the so called organised retail in the country is about 4-5% of the total retail. The interest of the retailer and employee always go against each other.  The footwear, apparel, consumer durables and IT, furnishings,hardware etc are part of the so called Indian organised retail, organised because of the fact that they just have sales tax number and not because they have employees rather than servants whose interests are taken care of through provident fund, medical insurance and other benefits due to an employee. Any good governance should aim at increasing the organised sector, be it a retailer or an employee.Incidentally retail in India is of the order of Rs 23000 billion (2,30,000 crore) and its contribution to the Indian budget  is  negligible but the contribution to black money is significant.These were discussed earlier in FDI in retail in India:why so much of opposition. But the Indian polity with all self professed concern for the poor man is working feverishly not to reduce this unorganised sector.
The talk about desruction of all the  Kirana and mom and pop stores along with 12 million retailers and 40 million employees is grossly over hyped and incorrect simply because its penetration in the Indian economy will be very very small.

  • Villages and towns below 1 lakh have a population of more lest than 900 million and are bound to cover 80% of 12 million retailers and 40 million employees comprising of the following categories and will be totally  unaffected by FDI in retail as big ticket retail stores have not been allowed to operate there.
  • Even in larger cities, where these stores will come in peripheral areas, presently only about 2-3% customers will be in a position to use the services of these mega stores because of limitations of personal transport, capacity and capability to store even a week's requirements.
 Then why go in for FDI in retail:
It offers many advantages, namely

  • A 10% mega store retail which may become a reality in the coming 15 years offers
  1. Rs 23000 crore of business which will abide by all the taxation rules of the government
  2. Bringing about 0.2 million employees into the organised sector with all the accompanying  benefits of giving them better remuneration, working environment and social security.
  3. Better earnings for the farmer and less rates to the consumer.
  • Apart from these direct advantages it offers certain grey area advantages which mean a lot in India's march to progress.


  1. Big boost to back end infrastructure like storage facilities including cold storage thus reducing the losses of farm produce
  2. Improvement in logistics of perishable and other commodities and allied infrastructure.
  3. Lowering of current account deficit directly and through feel good factor thus strengthening rupee. A 10% strengthening of rupee will reduce oil import bill proportionately and lower fiscal deficits thus helping in easing out inflation.
  4. Any capital inputs to the retail sector will upgrade India's  realty sector directly. 
In fact FDI in retail is a step in the direct direction and offers a win win situation in all aspects of economy. For this to happen the wise polity of the country should stop resorting to vote catching rhetoric and act in the interest of nation and common man.