FDI in retail is a boon for India

It is always imperative to understand the topic in its right perspective before you place your views on it. Let us first think what do we know about this hot, contemporary and fiercely-debatable topic and once we have clarity on the same, we may proceed to present our opinion based on facts in the given time. Any essay or write-up on the captioned topic should describe two broad issues what is FDI in retail and how is it beneficial to India. The essay below will give you a clear idea about it. Synopsis

1. Inroduction:Definition 2. FDI in Multi-brand retailing 3. Impact of FDI on unorganized retail 4. Impact of FDI on farmers 5. Absence of middle men 6. Antidote to Inflation 7. FDI assures protection of perishables 8. FDI adds to lifestyle 9. Conclusion Foreign direct investment (FDI) refers to foreign capital that is invested to enhance the production capacity of the economy. However, FDI in retail is different from the investment in corporate, manufacturing or infrastructure sectors. Retail can be single or multi brand and may be described as a sale to the ultimate consumer at a margin of profit. While the FDI in single-brand retailing was allowed earlier, FDI in multi-brand retailing is being allowed now. This means a retail store with foreign direct investment can sell multiple brands under one roof. So, it is the link between the producer/manufacturer and the individual consumer. India had to open up the retail trade sector to foreign investment as she is a signatory to the World Trade Organiz ations General Agreement on Trade & Services, which includes wholesale and retail services. The Indian retail sector is highly fragmented with around 97 per cent of its business being run by unorganized retailers. Organized retail is still at a nascent stage. With the entry of FDI, the retail sector will become organized. Foreign investment in food-based retailing would ensure adequate flow of capital into the country and its productive use. It will promote welfare of farmers by agriculture growth and thereby increasing their income level. At present, intermediaries, known by different names in different parts of the country, flout the business ethics, prices lack transparency and the due share of farmer is not paid to him. Regulated markets have also developed monopolistic character. Indian farmers, at present, realize only 1/3rd of the final price paid by the consumer as against 2/3rd realized by farmers in the countries with a greater share of organized retail. FDI will assist in reducing the dominance of value chain by intermediaries. FDI in retail will make the consumer happy as well. In the absence of intermediaries, the consumer will end up paying lower price for a better product. Besides, in the unorganized sector, consumer has to argue and fight a lot in case he has to return some faulty product to the retailer. This process will be standardized. It will serve as an antidote to inflation. The producer will get direct payment from the retailer and the same will be higher than what he was getting earlier due to the foul play by intermediaries. In accordance to the provisions made, any company going for 51% partnership in retail will have to tie up with a local partner. This will improve the income levels of all concerned and will make economy flourish with quality branded products at a lower price. FDI will improve investment in logistics of the retail chain, leading to an efficient market mechanism. India is one of the biggest producers of fruits and vegetables (more than 180 million tonne). However, it does not have a strong integrated cold-chain infrastructure with only around 5,400 cold storages having total capacity of about 24 million tonne. The irony is that 80% of the capacity is used only for preservation of potatoes. Perishable horticultural commodities find it difficult to link to distant markets, including overseas markets. FDI will become a catalyst in avoiding distress sale and erosion & wastage in quality and quantity of the produce. Foreign direct investment in the retail sector will spur competition as the current scenario is of low competition and poor productivity. India will flourish in terms of quality standards and consumer expectations. Fears that the entry of FDI in multi-brand retail may cause unemployment as foreign firms may not procure material from domestic producers and may import the same from international market are unfounded as the entry of big companies like Reliance and Tata has substantially improved the life standard of farmers and villages from where they are procuring. The present public distribution system will also be strengthened with better products and storage facility. Even the FDI retail may be assigned this job. Allowing FDI in multi-brand retail will bring about supply chain improvement, investment in technology, manpower & skill development, upgrade in the agriculture sector, and benefits to the government through greater GDP and tax income. The organized sector will also lay stress on producing more and will generate more employment in production as well as retail industry.

FDI in retail is a boon for India

Dangers posed by FDI in retail G. SRINIVASAN The promised protection for small industries could turn out to be a farce. The Parliamentary approval to opening up multi-brand retail up to 51 per cent in foreign direct investment (FDI) is no guarantor that things will be fine soon. Investors are not too pleased with the fact that States have still been left with the choice to opt in or out of allowing FDI in multi-brand retail; most States made it clear that they would not let their small traders shut down shop. Besides, the virtual tumult this issue had evoked in Parliament, prompting ideologically disparate political parties such as BJP and the Left to vote against it, has sent gloomy signals to overseas investors even with 51 per cent and not 100 per cent in multi-brand retail, they would not have a smooth run across India. The reservations on allowing FDI in multi-brand retail may not be wholly unfounded. PROCUREMENT CLAUSE The Department of Industrial Policy & Promotion (DIPP) Press Note 5 (2012 series) issued on October 20, said that 30 per cent of the value of procurement of manufactured/processed products purchased by multi-brand retail giants, should be sourced from Indian small industries with a total investment in plant and machinery not exceeding $1 million. This valuation refers to the value at the time of installation, without providing for depreciation. Besides, if, at any point of time, this valuation is exceeded, the industry would not qualify as small industry for this purpose. The other stipulation is that the procurement requirement would have to be met, in the first instance, as an average of five years total value of the manufactured/processed products purchased, beginning April 1, of the year during which the first tranche of FDI is obtained. Thereafter it would have to be met on an annual basis. The rationale for this clause is that the FDI entry should benefit small-scale industries. Again, the rider that at least 50 per cent of total FDI brought in should be investe d in back-end infrastructure within three years of the first tranche of FDI (the minimum amount to be brought in as FDI by the foreign investor would be $100 million) that covers capital expenditure on all activities such as processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure. TWEAKING THE RULES A moot point is that the rules provides for self-certification by the company to ensure compliance of t he twin conditions, which could be cross-checked, as and when required. The onus is on the purchaser to fulfil the conditions that may be duly certified by statutory auditors through self -certification. Big foreign companies with deep pockets would find it facile to manufacture such certification from complaisant auditors to play ball with them, instead of scouring the country to obtain the requisite supply from MSEs. It would not be off the mark to note that policy reservation for small-scale industries (SSIs) which later morphed into MSEs, was set off in 1967. But over the years and particularly after Indias liberalisation of trade and industrial policies in 1991, 887 items had been de-reserved from time to time. With the last deletion in 2010, the number of items in the reserved list has been brought down to 20, which cover only food and allied industries, wood and wood products, paper products, other chemicals and chemical products, glass and ceramics, mechanical engineering excluding transport equipment such as steel almirah, rolling shutters, padlocks, stainless steel utensils and domestic utensils-aluminium. This was stated by the Minister for Micro, Small & Medium Enterprises K. H. Muniyappa in Rajya Sabha on December 10. With the space for MSMEs thus reduced, can they be expected to provide 30 per cent of the requirements of multi-brand retail stores, comprising assorted goods and items? Apart from the 30 per cent mandatory reservations which may be easily circumvented, the rest of the 70 per cent can be imported from cheaper sources such as China and Bangladesh, further harming domestic industry. Already, the air is rife with troubling tidings that Wal-Mart is being subjected to inquiry under the Foreign Corrupt Practices Act, US, into the allegations of potential violations in certain countries, including India. Following the uproar in Parliament, the Government has been compelled to set up an inquiry committee under a retired judge. The Reserve Bank has said that issues related to Bharti Wal-Mart/Cedar Support Services Ltd and Flipkart Online Services Pvt Ltd, respectively, have been referred to the Directorate of Enforcement for further probe. This was stated in the Lok Sabha on December 3 by Minister of Commerce and Industry Anand Sharma. LIVELIHOOD ISSUES

FDI in retail is a boon for India

Unorganised retailing in India encompasses low-cost retailing, for instance, the local kirana shops, owned and operated general stores, pan/beedi shops, convenience stores, hand cart, pavement vendors that one is inured to here. Organised retail chains such as Pantaloon, Shoppers Stop, Marks & Spencer, Hyper City, Trent, Reliance Retail, Subhiksha constitute only five per cent of the total ret ail market. Indias retail business provides livelihood security to lakhs of self-employed people. Without providing manufacturing-driven job opportunities to millions, the Government would be fostering social problems of huge dimensions, if it believes FDI in retail would deliver. (This article was published on December 19, 2012) Keywords: foreign direct investment, FDI, Foreign Corrupt Practices Act, US, Pantaloon, Shoppers Stop, Marks & Spencer, Hyper City, Trent, Reliance Retail, Subhiksha, FDI in multi-brand retail, Wal-Mart, Flipkart Online Services

Foreign direct investment (FDI) in retail sector. BackGround The recent cabinet decision on FDI in retail has triggered protests by opposition and key allies of the ruling United Progressive Alliance (UPA), who are demanding a roll back of the policy. The hour-long meeting held in Parliament House failed to resolve the logjam in the two Houses as opposition parties, led by BJP and the Left, stuck to their stand and demanded rollback of the Cabinet decision to allow 51 per cent FDI in multi-brand retail. Though at present only 53 cities with population not less than 10 lakh in the country have been identified for FDI As the fourth-largest economy in the world in PPP terms, India is a preferred destination for FDI. During 200010, the country attracted $178 billion as FDI. Favor

This will bring modern technology to the country. Improve rural infrastructure.It would help build infrastructure and create a competitive market. Reduce wastage of agricultural produce. Enable our farmers to get better prices for their crops. consumers will get commodities of daily use at reduced prices. Biggest beneficiary of this would be small farmers, who would be able to improve productivity and realize higher remuneration by selling directly to large organized players and shorten the chain from farm to consumers. Government too stands to gain by this move through more transparent and accountable monitoring of goods and supply chain management systems. It can expect to receive an additional US$ 25-30 billion by way of taxes Opening of retail can be seen as a solution for food inflation, which has been confounding policy-makers. FDI in retail would help in building much needed back end infrastructure. Additionally, he said, investments in cold storage chain infrastructure would reduce loss of agricultural produce and provide more options to farmers.

India Infoline News Service / 09:15 , Dec 13, 2012 The 30% mandatory sourcing condition has been incorporated to encourage local value addition and manufacturing.

Foreign Direct Investment (FDI) complements and supplements domestic investment. Domestic companies are benefited through FDI, by way of enhanced access to supplementary capital and state-of-the-art technologies; exposure to global managerial practices and opportunities of integration into global markets. Government had instituted a study, on the subject of Impact of Organized Retailing on the Unorganized Sector, through the Indian Council for Research on International Economic Relations (ICRIER), which was submitted to Government in 2008. The ICRIER study indicated significant benefits for various stakeholders, such as consumers, farmers and manufacturers, arising from the growth of organized retail. Based upon the study, as well as the experience of other countries, it is the Governments assessment that implementation of the policy permitting FDI, up to 51%, in multi-brand retail trading, is likely to facilitate greater FDI inflows into front and back-end infrastructure; technologies and efficiencies to unlock the potential of the agricultural value chain; additional and quality employment; and global best practices. This, in turn, is expected to benefit consumers and farmers in the long run, in terms of quality and price. The 30% mandatory sourcing condition has been incorporated to encourage local value addition and manufacturing. The increased level of activity, in the front-end, as well as in the back-end, resulting from greater FDI inflows, is expected to create additional employment opportunities for rural and urban youth. It is, further, expected to encourage existing traders and retail outlets to upgrade and become more efficient, thereby providing better services to consumers and better remuneration to the producers from whom they source their products. There is no procedure to shortlist companies. Foreign investors desirous of investing in retail trade (multi brand or single brand) in India are required to submit their applications in the Department of Industrial Policy & Promotion, where their applications are examined to determine whether the proposed investment satisfies the notified guidelines, before being considered by the Foreign Investment Promotion Board, in the Ministry of Finance, for Government approval. As per some news items published on 17.11.2012, Wal-Mart, USA, is stated to be inquiring into allegations of potential violations, under the Foreign Corrupt Practices Act of USA, in certain countries where the company is operating. India has stringent anti-corruption laws. Any corrupt practices are liable to be dealt appropriately under applicable laws.

FDI in retail is a boon for India

This information was given by the Minister of State for Commerce & Industry Dr. S. Jagathrakshakan in written reply to a question in Rajya Sabha today.

FDI in retail will help farmers, consumers: PM Manmohan Singh LUDHIANA: A day after winning Parliament's approval to the decision of allowing FDI in retail, Prime Minister Manmohan Singh on Saturday saidthe move will benefit farmers and consumers and help introduce new technologies in agri marketing. He also said the decision to allow FDI was "supported" by farmers' organisations in Punjab.

Speaking as a chief guest at Punjab Agricultural University's golden jubilee function here, he said FDI in retail will help introduce new technologies in agri marketing, and will "benefit farmers and consumers". The decision to allow FDI was backed by farmers' organisations in Punjab, he said at the PAU function, where he was honoured with a Doctor of Science degree. Government had on Friday won the approval of Parliament to its controversial decision of allowing FDI in multi-brand retail with a motion against it being defeated convincingly in Rajya Sabha, as BSP voted in favour of UPA. 123 members had voted against the motion while 109 voted in favour after a debate during which the opposition had attacked the proposal to allow 51 per cent FDI in multi-brand retail, while the government had strongly justified it saying it was in the best interest of the country. Speaking at the university, Singh asked leading farm varsities like PAU to gear up to meet the existing and future challenges in the agriculture sector. He said agriculture supply chains in India are fragmented and stressed the need for development of efficient and vertically integrated supply chains. Stressing that investments in backend infrastructure can help cut down loss of perishable crops, he asked Punjab "to take the lead in best practices of crop management". Singh also hoped that Punjab will fare better as 12th five-year plan has for the country as a whole "targeted 8.2 growth in the GDP and 4 per cent in agriculture". Expressing concern over exploitation of ground water in Punjab, the Prime Minister said it far exceeds what can be recharged. "80 per cent development blocks have been categorised as over exploited," he said, adding that the challenge for sustainable agriculture was to help farmers take up diversification. Even though the rice-wheat cropping pattern is profitable, it has led to over-exploitation of the water, he noted. Singh said gradual phasing or shifting to other crops as well will not affect overall food security of the country and pointed out that in addition to states like Punjab, eastern and central parts of the country together with leading agrarian states, can help ease the burden of food security. For crop diversification, he said state like Punjab can take up alternative crops like maize, cotton, sugarcane, oilseeds, besides fruits and vegetables. He also made a mention of the Centre's National Food Security Mission launched five years back and said the efforts under it were producing results. The Prime Minister asked farm varsities like PAU to also gear up to face the challenges posed by the climate change. "Rising temperatures will also have negative effects on productivity," he said, adding current varieties of wheat can also be hit by the climate change. Asking PAU to develop varieties that are resistant keeping the climate change in mind, he said, "We must deal now with the expected threats that appear on the horizon."

Against

Our interest rates today are as high as 14 per cent to 16 per cent how do we compete with the economies which have a 4 per cent interest rate. Our infrastructure our trade facilitations our labor laws, all these factors collectively don't make India low cost. So do you want India to become a center where we allow foreign companies to come in and set up these large chains which eventually

FDI in retail is a boon for India

instead of selling domestic products out sourcing internationally the cheapest sources and selling those products. Please remember domestic retail normally sources domestically, international retail sources internationally because they source from the cheapest sources. Even if big retail companies help the farmers in resurrecting their economy, what plan does the government has for millions of middlemen who are part of the business process chain that ensures manufactured products reach end users. We engage millions of uneducated and semi-educated people at various stages of retail business spread across towns and cities but we are afraid that Tesco and Wal-Mart will only engage smart and educated workforce in small strength, comparatively.

How FDI in retail affects the Mango Man MATHEW THOMAS | 07/12/2012 02:29 PM | FDI in retail is an example of deregulation, devoid of any safety net for its after-effects. Would the government consider the Parliament Committee report or treat Parliament with disdain?

Here is a simplified explanation, sans economic jargon, to help understand FDI (foreign direct investment) in retail and what it has in store for the aam aadmiThe Mango Man. Let us start with an analogy.When a falling stone hits the ground its energy is converted and dissipated as heat. However, if the same stone lying on the ground is heated, it does not take off. What is the relevance of the falling stone to FDI in retail?

What is FDI in retail? It means Foreign Direct Investment of 51%, a controlling stake is permitted to any foreign company to set up retail trade in India. Simply put, a number of foreign-owned supermarkets would sprout all over the country. At a political party rally in Delhi, the leaders extolled the virtues of FDI in retail as symbolic of the partys reforms agenda. The phrase, economic reform has ma ny different meanings depending on ideological and political leanings.

One view is that between 1875 and 1975 it meant more government and since then it means less government intervention or free run for market forces. A Wall Street view says that it means, Change for the better as a result of correcting (economic) abuses. Better for whom? and whose abuses would the reforms correct? Did the post 1975-reforms in USA correct the abuses by financial wizards that led to the 200708 meltdown? A third view holds that economic reform refers to policies directed to achieve improvements in economic efficiency. Which of these did the rally leaders have in mind when they toasted the FDI reform push?

(Read: Is FDI in retail good or bad?)

Those in favour of FDI in retail painted rosy pictures of benefits such as better prices for farmers, more jobs, better shopping experience and so forth. Those against it predicted the opposite. Few had hard facts to back their arguments. It is strange that neither the government nor the opposition referred to the report of the Parliament Committee which examined FDI in retail. The Committee seems to have done a comprehensive study, examining a number of witnesses, individuals, NGOs and trade bodies, travelling around the country, studying reports and experiences of other nations and asking questions of government departments. The Committee concluded that more people would lose jobs that the number that would find work. They said that FDI in retail would destroy large numbers of small and marginal farmers. They cautioned against the probable monopolistic behaviour, predatory pricing and attendant consequences. The Committee found that unorganized retail provides livelihoods for 40 million people, that is, for about 8% of the countrys workforce. Referring to the projection of FDI in retail creating 2 million jobs, the Committee said that this was exaggerated and that this ignores 200 million people who depended on retail trade for a living. The Committee was not only critical of FDI in retail, but also of any large corporate in retail business. The Committee drew a dismal picture of the effect of FDI in retail on the Mango Man.

Conclusion

Government is taking this decision in good faith.Few persons and lobbies controlling the rates of food commodities in India.And bringing more competition in market will bring better prices for buyers as well as sellers of commodities. Parties protesting against

FDI in retail is a boon for India

FDIs in retail have choice to not allow FDIs in the states they are ruling.Government should make a regulatory body for the commodity trade as we have for cellular services.