New Delhi: In order to give a thrust to the slowing down Indian market, Prime Minister resorted to a bold decision by proposing 51 percent Foreign Direct Investment (FDI) in multi-brand retail sector. But his government could not stick to the decision and backtracked under tremendous pressure from both his opponents and alliance partners of UPA.

The government is now trying to build a consensus for allowing FDI in the multi-brand segment and one cannot be sure whether the government will be able to allow the required reforms in this sector ever in future.  

The major opposition parties like BJP and the Left had opposed the FDI proposal openly and warned government not to allow it.

The UPA’s Key partner Trinamool Congress chief Mamata Banerjee had also opposed the FDI in retail and said, “We do not want entry of multi-brand FDI in retail. We will not accept and this is our government's policy."

Let’s find out what is the issue all about?

FDI can be defined as a cross border investment, where foreign assets are invested into the organizations of the domestic market excluding the investment in stock.

What will FDI in retail bring to India?

As we know, retailing is world’s one of the largest private industries. Opening the retail industry to FDI will bring forth benefits in terms of advance employment, organized retail stores, availability of quality products at affordable prices.

It enables a country’s products or services to enter into the global market.

FDI enables transfer of skills and technology from overseas and develops the infrastructure of domestic country.

If the industry experts are to be believed, then FDI in Retail will create a massive job opportunities in India.

According to the industry body CII, it is estimated that producers especially the farmer community would stand to gain 10-30 percent higher remuneration, 3-4 million direct jobs and another 4-6 million indirect jobs would be created by opening doors to FDI in this sector.

As per the industry report, organised retail in the country currently stands at about USD 30 billion or 6-7 percent of total retailing. Citing a (BCG) report, it said the total retail market is projected to touch USD 1,250 billion by 2020.

Also, consumers would get a price savings of 5-10 percent and government would get additional revenue of USD 25-30 billion by the way of multifarious taxes.

Opening gates for FDI in multi brand retail sector will also curb the wastage of important stuffs like food grains, which is quite apparent across the country.

“FDI is well due in India, and it is very important for the long term future of the supply chain in the country. So any decision which can be arrived at is surely going to be a welcome thing,” said Rakesh Biyani, Joint MD, Future Group in an interview given to a TV news channel on Saturday.

Biyani further added that the FDI's real focus is on improving the supply chain. We keep hearing about all kinds of wastages that are happening in India, the quality of output that we are getting and the productivity standards that India has been achieving. Therefore, India is basically very low on its productivity standards. FDI allows you to integrate end-to-end from the farm to folk supply chain.

With that investment, you will find that the wastage levels can go down significantly. The estimates on wastages are currently at about 34 percent, and even if we are able to take a reduction of about 15-20 percent over the next 5 to 10 years, that is a significant improvement, he added.

Concern over existing players:

The biggest concern over the FDI issue is that, what will happen to existing domestic brands like Godrej, Reliance and the RPG Group, when retail giants like Walmart and Tesco will enter.

Should we consider the closure of domestic brands, small retailers and Kiraana stores in our neighborhood?

No, let me recall the history once again. When organized retail chains were launched by renowned Indian corporate houses, people opposed their entry even that time also, by showing their concern that it will result in closure of Kiraana stores and small retailers. But that did not happen.

Despite of that fact, our neighborhood Kiraana stores and small retailers are running successfully even today.

How our FDI model is different from U.S. and other developing countries?

Unlike, other Asian developing countries, Indonesia, Malaysia, Thailand, and China, where FDI in retail is 100percent, we have fixed it at 51percent.
The minimum investment would be USD100 million and out which 50percent has to be invested in rural India.

Moreover, the government has also made it mandatory for the investors to source 30percent goods from small industry, which will encourage local value addition and manufacturing.

The small retailers will have full right to buy from big retailers at a discounted wholesale price. Therefore, the proposed FDI in retail will bring lot of growth through many parameters and one of the important one is by creating massive jobs.

So, in all FDI in multi brand retail sector is win-win situation for us and for the growth of India.

Gopi Krishna Arora/JPN

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