How will FDI affect the retail sector in India ?

Pros & Cons of FDI in retail

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Balaji Viswanathan
Balaji Viswanathan
Indian by Birth. Indian by Thought.
Upvote 298 upvotes by Arjun Sarode, Akash Bayya, (more)
Cons:
Possible unemployment at lower level jobs
Concentration of resources and power with a few retail outlets.
Reduction of choice as many local merchants be out of business.

But, I think the pros outweigh the cons. Here is why:

Building up a modern supply chain infrastructure. By the time goods get to
consumers, a big chunk of agricultural products get wasted. This is due to
the byzantine supply chain system. It requires billions of dollars and
technology know how to build a modern supply chain infrastructure.
Currently, only deep pocketed FDI players can build such. Once the
infrastructure is built, there would be ruboff effects on the whole economy.

Disintermediation. By the time a vegetable reaches a consumer it might

have passed through 6 hands. This colossal waste due to intermediataries
and brokers can be reduced by one retail chain buying from farmers and
selling it to the buyers. In most cases, the farmers get a great deal.

Better tax collection. Does your neighborhood shopkeeper give you proper
receipt? In a modern retail, receipts are mandatory and that helps the
government with tax collection. Billions of dollars in sales tax receipts
happen in India.
Better quality control. FDI backed retailers will have better resources to setup
cold storage facilities and quality control centers.
More jobs for the middle class. Retail industry hires plenty of lower and upper
middle class people to manage the stores and supply chain. These jobs can
help people out of poverty. Also, child labor can be curtailed in modern retail
due to better visibility. In contrast, existing jobs in local kiranawallah is
mostly at the menial level.
The foreign retailers who come to India will also be more open to sourcing
manufactured goods and food products from India - as they have existing
infrastructure. This mean more jobs and forex reserves.
Written 16 Sep, 2012.
Upvote298Downvote
Comments14+
RELATED QUESTIONS
Why are people against FDI in retail in India?
How will an FDI in retail affect Indian "mom and pop" stores if retailers like
Reliance Mart and Big Bazar have not done so yet?
Will India benefit from FDI in retail sector?
_______________________________

How will FDI affect the retail sector in India ?

Pros & Cons of FDI in retail
Follow128Downvote
29 ANSWERS
128 FOLLOWERS

25,398 VIEWS
LOG
Balaji Viswanathan
Balaji Viswanathan
Indian by Birth. Indian by Thought.
Upvote 298 upvotes by Arjun Sarode, Akash Bayya, (more)
Cons:
Possible unemployment at lower level jobs
Concentration of resources and power with a few retail outlets.
Reduction of choice as many local merchants be out of business.

But, I think the pros outweigh the cons. Here is why:

Building up a modern supply chain infrastructure. By the time goods get to
consumers, a big chunk of agricultural products get wasted. This is due to
the byzantine supply chain system. It requires billions of dollars and
technology know how to build a modern supply chain infrastructure.
Currently, only deep pocketed FDI players can build such. Once the
infrastructure is built, there would be ruboff effects on the whole economy.

Disintermediation. By the time a vegetable reaches a consumer it might

have passed through 6 hands. This colossal waste due to intermediataries
and brokers can be reduced by one retail chain buying from farmers and
selling it to the buyers. In most cases, the farmers get a great deal.
Better tax collection. Does your neighborhood shopkeeper give you proper
receipt? In a modern retail, receipts are mandatory and that helps the
government with tax collection. Billions of dollars in sales tax receipts
happen in India.
Better quality control. FDI backed retailers will have better resources to setup
cold storage facilities and quality control centers.

More jobs for the middle class. Retail industry hires plenty of lower and upper
middle class people to manage the stores and supply chain. These jobs can
help people out of poverty. Also, child labor can be curtailed in modern retail
due to better visibility. In contrast, existing jobs in local kiranawallah is
mostly at the menial level.
The foreign retailers who come to India will also be more open to sourcing
manufactured goods and food products from India - as they have existing
infrastructure. This mean more jobs and forex reserves.
Written 16 Sep, 2012.
Upvote298Downvote
Comments14+
RELATED QUESTIONS
Why are people against FDI in retail in India?
How will an FDI in retail affect Indian "mom and pop" stores if retailers like
Reliance Mart and Big Bazar have not done so yet?
Will India benefit from FDI in retail sector?
Gaurav Shah
Gaurav Shah
Mr. Curious
Upvote 34 upvotes by Azhar Hussain, Makeityum Swati, (more)
Ok. This is going to be a long answer so time to put on your seatbelts. Lets
do this!

There are both pros and cons to the FDI in retail. But the pros outweigh the
cons 1:10. Tl:DR;

Free market competition works and real people benefit. Enormously,

Competition delivers the most goods and services at the best prices to the

greatest number of people. It creates better, more efficient companies and

gives buyers more value. Thats the magic of the free market.

Now, some of the critics are just honest, good-hearted individuals who dont
like large stores or may have been misinformed or misled. Others, many of
whom are broadly critical of free market system, have a habit of trying to
tear down the most successful companies and industries.

These are some of the economic advantages of letting FDI in retail:

Large Scale Employment

An additional eight million jobs will be generated in India through direct and
indirect employment through organized retail. This will also provide quality
employment, as there is a lot of disguised unemployment in the unorganized
retail sector; such ought the development of organized retail.

People choose to work in big chains because they most offer real career
opportunities and provide competitive pay and affordable health care.
Compare that to the current system and am sure you will see the difference.

It is not as though organized retailing would be functioning by robots. The

organized retail sector is capital intensive but it is also labour intensive.
While the 'mom-and-pop' may experience some reduction in clientele, 'sonand daughter' as well as 'nephew-and-niece' would be finding jobs in the
more organized stores - and hopefully `cousins-and-grandchildren' would be
finding jobs in the expanded manufacturing sector!

Benefits to Farmer/Agriculturist

The agricultural sector in India is characterized by poverty. If there is one

segment of our society that toils to provide basic needs, and yet languishes
on a pittance it is the agricultural segment. In spite of the fact that farmers
are responsible for putting food on our plates the typical Indian farmer is a
poor man. It is only when food processing and packaging takes off in a big
way that we can hope to give the agriculturist his due.
FDI in retail will result in efficiency in supply chain that the foreign retailers
can bring and the huge opportunity in farm exports. Even bigger claims:
India can attain huge savings by merely improving the supply chain. Some
20-40% of all fruits and vegetables grown in the country go waste due to
poor transportation, storage and handling infrastructure.

Further, with the investments in upgrading technology and practices in the

entire value chain, including production, packaging, grading storage and
logistics, the current levels of wastage ranging between 24 per cent and 40
per cent are expected to come down.

For every rupee that an Indian consumer spends, the farmer gets only 20-22
paisa, as against 70-80 paisa in developed markets. If large retailers,
whether domestic or foreign, directly source through farmers, realizations will
go up for the farmers.

Export Promotion

As regards exports, it has been further asserted that the global giants like
Wal-Mart can substantially improve the fortunes of India's farm sector by
directly linking it with the global supply chain. Remember, China's agriculture
exports to the US nearly trebled from $3.86bn in 1999 to $9.96bn last year.
India, on the other hand has made only a marginal progress, with its farm
exports to America rising from $3.19bn in 1999 to just $4.28bn.

Reduced tax evasion

Organized retail generates substantial sales tax and property tax revenues
for the state in which it locates. This could potentially be of great benefit to
the fiscal well-being of the local government in the town or state where the
store (Wal-Mart, Ikea, Carrefour et al) is located.

Inflation Control

According to the World Bank, opening the retail sector to FDI would be
beneficial for India in terms of price and availability of products. Experience
everywhere has shown that organized retailing tends to have a major
controlling effect on inflation because large organized retailers are able to
buy directly from producers at most competitive prices.

At Wal-Mart and Ikea, for instance, prices have not increased in real terms for
almost a decade.

The scale of operation and technology help organized retailers score over the
unorganized players, giving the consumers both cost and service
advantages.
As of now, the Indian retail sector, largely due to its fragmented structure,
suffers from limited access to capital, labor and suitable real estate options.
In contrast, China, which allowed 49 per cent FDI in the retail sector since
1992, benefited immensely with foreign players bringing capital and new
technologies and growing export market for domestic products. At present,
around 40 foreign retail players account for almost 20 per cent of the
organized retailing in China.

Critics against FDI in retail

The kirana stores will disappear.

Fears expressed in certain quarters that FDI in the retail sector will shortchange the local kirana stores and smaller players are exaggerated. On the
contrary, it will to lead new economic opportunities and generate more
employment.
The following are a list of advantages that the kirana will always have over
lets say a Wal-mart. (or a furniture stores as compared to Ikea; you get the
drift)

PERSONAL TOUCH

All the players in the organized sectors have a strict no credit policy
whereas the existing kirana stores have a personal contact that they can
never replicate. Low income houses with individual who rely on meager
salaries and day to day wages have a problem with the no credit policy. This
would in turn change into a consumer who would turn into someone who
shops at his neighborhood store and not at Wal-Mart. Also the personal touch
would be reflected by the ability and willingness of the local grocer to
personally offer services like home delivery, customized packaging etc.

GEOGRAPHICAL ADVANTAGE

There is a Wal-Mart at a density rate of 20 kms. Essentially this would mean

that there is a Wal-Mart at a distance of every 20 kilometers, with the ever
increasing prize of fuel the prize advantage offered by Wal-Mart is severely
blunted. Just think about it: if you have to buy a small amount of something,
you would find it convenient to walk up to your local kirana and buy it on
your way back from work rather than walk through a maze of supermarket
style aisles search, stand in a queue at the counter and go home with a 500
gram pack of coriander seeds though I want just 100 grams.
The kirana store does have an edge over Wal-Mart.

The benefits of low cost retailing are especially important in a developing

country like India. All the organized players will have a better supply chain
and hence the consumer stands to benefit by virtue of cheaper prices. I think
there is a place for everyone in Indian market, the Kirana stores will serve a
certain segment and the Wal-Marts of the world another. All the big stores
are geared towards bulk shopping, in large sizes that allow for cheaper unit
cost.

Now there are huge numbers of critics.

They are broadly be classified into the following groups:

THE NO CAPITALISMS
Some self-appointed arbiters of taste and culture dont like FDI in retail
because it represents the triumph of mass market capitalism and the rise of
a so-called consumer culture. These snobbish elites wont appreciate these
retail giants providing the great Indian middle class with countless cartloads
of affordable goods.
Other critics include blame-India-first political radicals. This smaller but
intensely motivated group would include extreme, anti-growth
environmentalists as well as the sort of self-styled anarchists who routinely
try to shut down international conferences on world trade.

THE PESSISMISTS
All the big Chains are also a regular target of journalists who make their
living spreading doom-and-gloom economic reports. While Indians have
continued to prosper in recent decades, reporters are well aware that they
are unlikely to score ratings points or win journalism awards for reassuring
people that things are going well.

Conclusions!
The overriding charges one comes across amid the many rants are "too
large" and "too powerful." Thus it's just more anti-industry, anti-free market
claptrap. Along with that are the hoots and hollers about this great chain
"destroying small towns" by way of buying property in rural areas and
opening its doors to townsfolk so they have access to convenient, one-stop
shopping, an ample supply of products, and unbeatable prices.
However, there is one prevailing phenomenon that makes big players coming
in a unique target for contempt and that is its "bigness." public, generally
speaking, like to attack bigness. There are things associated with bigness
that individuals aren't keen on, like clout and domination.