There has been a lot of ambiguity and distress among
the people and various political parties over the government’s Foreign Direct
Investment policies. In spite of widespread agitation the government has made
bold decisions which would allow foreign retailer giants such as Wal-Mart,
Tesco, Best Buy, Home Depot, Staples, set foot into the Indian retailer market.
There is always going to be mixed opinions about
this. To get a clearer picture let’s look from three different perspectives.
Government
Despite the decisions that seem bold, the government
is cautious in its approach. They came out with a similar policy last year but
had to roll it back due to heavy criticism coming from the coalition parties.
This time with economy going down in various sectors and with food inflation
rising, they had act. With countries like China, Brazil and other growing
economies allowing 100% FDI, our government decision is a sensible one at the
least and will enable us to look at the progress of things under the new
policies.
Within the policy itself there are certain highs.
Some of them are; 50% of the investment should be in villages, 30% of source
goods should come from small scale sector, retail stores to be set up only in
cities with population higher than 10 lakhs, decision of implementation of
these policies is left to the state governments.
For these reasons the government is a real winner.
Only 10% to 14% of the retail price is going to the producers; and the retail
prices are high due to the higher number of middle men involved. The producers
and manufacturers are going to welcome this as there is a promise of higher
value for their goods.
Also, setting up of the foreign retailers here,
means development of infrastructure which is an important criteria for a
country’s growth.
Indian
Retailers
For those retailers who can compete with the
incoming foreign brands, it’s going to be an interesting bout with potential
self growth. They are going to learn and implement new strategies as only when
there is competition one performs well.
For the small scale retailers, middle men and for
those who don’t have the financial power to compete, it’s going to be a real
doom. The middle men will be affected first. With the large retailers directly
buying from the producers the small scale retailers will also buy directly to
sell at the market rates and this removes the middle men. Now, the giant
organisations have the small scale retailers at their mercy, and can even force
them out of the market. How exactly? Reduce the market price which will force
the small scale retailer to follow suit. Initially the small scale retailers
may be able to bear the burden by taking in the losses, but on the longer run
it only means ‘’shutter down’’ for them. But the bigger organisations with huge
financial power can take in the losses until the others are wiped out and later
increase the market rate and even make up for their losses with no one to
compete.
Consumers
Consumers are an unique breed. They love to be
spoilt for choices and that is what going to happen when the foreign retailers
land here. Over the years retail buying for the middle class and above has
changed. Once it was waiting in a crowded retail shop, raising your voice
highest to get the attention of the shopper, list out your things and finally
bill it up and return. Nowadays, it’s more like a leisure activity and they
don’t mind paying a few extra rupees for that. People go to the supermarket at
the weekends, get their trolleys, place their kids on it and go for a fun ride
around the supermarket. They have no problem with the higher end retailers
coming in. Their experience is only going to get better.
So, the FDI policy is good for the customers, better
for the government, even though bad, considering the walk out of certain
allies, and not good for the small retailers. But with rampant globalisation
occurring in various fields and already existing Indian retailer chains such as
Reliance Fresh, Star Bazaar and many other growing in number every other day,
its only inevitable that when it hits the retail business, the small retailers
are going to take a hit. This policy may fasten it up, but, withholding it, is
never going to save the small retailers on the longer run anyway.
So, welcome FDI. It’s global growth that is inevitable.
Swasthika Sang
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