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The Government has decided to allow Foreign Direct
Investment (FDI) upto 51% in multi brand retail. This means that
global retailers can come to India with a local partner and set up stores in
the country. Till now FDI was not allowed in multi brand retail.
However, there were big multi brand retail outlets owned by Indian entities.
This decision is an enabling policy that will open up new windows of
opportunity to modernize the retail sector particularly for agricultural
products and the small-scale sector.
The benefits would be for all:
The farmer will
get a better price for their produce as middlemen will be removed
and retailers will buy directly from farmers. Farmers’ losses from
wastages specially in vegetables and fruits will come down.
The small scale sector will find new buyers and cheap and better quality
source for their products.
Consumers will
get better prices and greater variety from these stores. The entry of
global players will encourage existing traders and retail outlets to upgrade
and become more efficient, thereby providing better services to the consumers
as also better remuneration to the producers from whom they source their
products.
This is also one of the most effective ways to
tackle rise in food prices and inflation due to availability of food
items on lower prices.
Today India is one of the largest producers of
fruits and vegetables in the world. However 30-40% of food and vegetable
products go waste due to lack of storage and cold chain facilities. This
decision will bring in funds for investment to improve supply chain
infrastructure such as cold storage, transportation and procurement along
with bringing in investment for growth of the economy.
This will bring huge employment opportunities
in agro-processing, sorting, marketing and the frontend retail
business. As per some estimates upto 10 million jobs will be created in
coming years.
Government has provided safeguards to protect
national interest such as:
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1. Minimum investment by
the global retailer will be $ 100 million and 50% of which will be in backend
infrastructure that will control wastage and help local farmers. Backend
infrastructure will be in or near villages and will be of immense value for
rural economy.
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2. It has been made
mandatory that 30% sourcing will be done from Indian small industry. This
will promote local manufacturing, as Indian small industries will feel
encouraged to expand capacities in manufacturing thereby creating more
employment and also strengthening the manufacturing base of the
country.
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3.These stores can be set
up only in cities with the population of more than 10 lakh. This
provision along with the requirement of master/zonal plans will make sure
that small retailers are not affected. Moreover small retailers can
benefit from sourcing their products from deep discount wholesale
cash-and-carry big retailers. This will improve quality of their
product and reduce their cost.
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4. In order to ensure
supply to ration shops (PDS) government will have the first right to the
procurement of agricultural products. This is important from food
security point of view also.
Some people fear that big retailers will destroy
small traders by keeping low prices initially (predatory pricing).
However, Competition Commission of India will not allow this to happen.
As the policy will be implemented in only 53 cities (with population over 10
lakh) which will make it difficult for big retailers to crush
competition. In many developing countries like China, Thailand,
Indonesia, Brazil, Argentina, and Singapore, where 100% FDI is allowed, small
retailers are successfully co-existing with big retailers.
Indian labour will continue to be protected by
Indian labour law. It is an enabling policy framework. States are free
to adopt it or leave it. Those states that do not want to have FDI in retail
are free not to allow them. This is done to maintain the freedom of states in
federal structure. FDI policy does not override the existing laws governing,
trade and commerce in the country. The State Government laws and
regulations in this regard would apply as much to the foreign players as to
the establishment of any domestic businesses in the retail sector.
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