Retail sector in India is quite an unchartered territory, with a potential far from abundant but reserved still, to the “mom and pop” shops in narrow streets and rich pavements. Currently, a US$ 450 billion industry, expected to double by 2015, adding 22% to the National GDP and seizing 8% employment, still comprises of only 6% organized retail, a question as well as an answer in itself.
The world was quite confident that India, the fourth most lucrative nation for retail investment as per GRDI index would open up multi-brand retail to FDI, but what was a colossal epidemic in 2007 still remains. And though economic progress may glide, the political parties are not ready to bet on their chances in the next election when 94% of the unorganized retail sector, the bread and butter for many Indian families is shredded by Global corporations, and of-course they have made up several arguments to conjure the unfitting FDI. The Indian Government however has been keen to exploit and harness the retail sector, and has been making changes in policies to restore faith and further indicate narrowing gap for foreign companies. For instance, single-brand retail is to get 100% FDI as per the latest announcements, which was 51% earlier. Also, an attempt was made to appease global investors by allowing 51% FDI in multi-brand retail, which would have allowed Wal-Mart, Tesco and Carrefour to enter Indian markets but the move has suffered a setback and is under advisory, due to inconsistent ideologies among national groups.
How Wal-Mart does it?
Many believe it won’t be long when hypermarkets and supercenters would fill the country side, but is today the time boggles many. The ways to approach the dilemma are varied and many. The entry of bigger players, supposedly Wal-Mart would change the entire landscape. The company has been best known to trim costs at manufacturers end, eradicate local retailers with its huge supplies at relatively lower rates, influence the way companies do business and for most part, spread like a cobweb. It exploits the possibility of squeezing every cent from the system by applying technological advancements to business protocols, making it more efficient to cater the uplifted consumption. Although, what might sound like a booming economy facilitating surplus consumption for conscious consumers, it is not accurate, for the other side is bleak. Wal-Mart, owing to its fair share of history, has come out as an evil empire, accorded to the power it holds over manufacturers, the way it monopolizes entire supply chain, the various lawsuits by employees under its belt concerning health care and wages, and the fact that while Wal-Mart employs, a number of people in retail lose their job.
Why is Government pushing it?
The Government of India is rightly aspiring to alter the system for standardization of quality at reduced costs, to cut down the gap between farm-grade prices and existing retail prices, which is indeed justified, but at the same time the entry of foreign players to achieve the former is disastrous for the 8% employed in retail business, many of whom are not even aware of the impact this American corporation would bring onto the one’s directly or indirectly associated.
The Government is advocating FDI, for it would result an increase in generation of income for Govt., as the unorganized retail sector that does not pay taxes with many unregistered family businesses, is not very helpful. It is again beneficial to the consumers, for the likelihood of prices going down is apparent, in-turn lowering down inflation.
Foreign Companies such as Wal-Mart, Tesco have already entered India, spreeing in joint ventures with Indian Companies, opening wholesale stores to sell to other local retailers in bulk, and not to consumers directly, as directed by law, known as the Cash & Carry format. Such an allowance by the Government is a direct attempt at providing Indian companies and local retailers with an opportunity and time to groom and learn the art of supply chain. Further, it would help the foreign companies’ transit and setup shops in Indian market rather quickly once they are allowed to enter.
The cloud of arguments
There is no denying that the allowance of FDI in multi-retail sector would have repercussions. Also, there exists disparity in India, widely apparent in the political consensus. It is however a possible choice between greater economic growth and retaining domestic business. In both cases, amidst avid globalization, transformation in the Indian retail sector from unorganized to organized is inevitable, be it the foreign players or the Indian players (such as Bharti Enterprises, Reliance Retail Ltd, Pantaloons Retail) themselves. The increasing engagement of consumers towards Malls is now a common phenomenon, with Indian players picking up rather promptly. Since, Indian companies are not as big as Wal-Mart, the implication of their presence is not that heightened, but then again, it cannot be denied that their role in retail sector is bound to increase, thus not acknowledging the transition would be a mistake. If FDI is allowed in multi-brand retail, the change or transition would be much faster and the damage to unorganized retail might appear more blatant which remains to this day the only reason for not entertaining FDI.
The fear of possible loss in domestic setup is however fuzzy, for if it would be that extreme a change is not known, as the sole basis of such ideology are illustrations from USA. Thus, it is highly important that the experiment with FDI is pushed forward, for India being a conscious consumer and purporting mixed economy unlike USA (Capitalist) would not face similar consequences. It is in the interest of consumers, and economic growth, and the problems it is likely to cause, would nonetheless appear in future.
To not support FDI is like avoiding the problem, to allow is the only way forward, why wait for another decade, let’s get it over with!