Battle ahead for govt. in allowing foreign retailers

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James Jose | 30 Aug, 2010
Foreign investment in multi-brand retail may snowball into another tussle between the Indian government and the opposition in the next few weeks, leaving for Prime Minister Manmohan Singh a nifty balancing act to reconcile the vast differences between the supporters and opponents of the move.

A perusal of the feedback the department of industrial policy and promotion (DIPP) has got to its proposal to open up multi-brand retail trade shows a sharp division among the various stakeholders. While the domestic and foreign retailers and industry lobbies favour opening up the segment as in the case with wholesale and single-brand retail, other interest groups such as of farmers, shopkeepers and traders are vehemently opposed to the move.

India allows 51 percent foreign direct investment (FDI) in single-brand retail and 100 percent FDI in cash-and-carry or wholesale trading. The world's top retailers are vying to enter multi-brand retailing to have a slice of the growing consumption market in India.

Global retailers Walmart and Carrefour, and lobbies like the US-India Business Council, Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry support the commerce and industry ministry's move, saying foreign investment up to 51 percent should be allowed in multi-brand retailing.

The Asian Development Bank in a recent report put the burgeoning Indian middle class at 418 million and said the country's private consumption expenditure is growing at an average rate of 8.3 percent per annum, which touched Rs.26,51,786 crore ($589 billion) in 2008-09 from Rs.19,26,858 crore (about $428 billion) in 2004-05.

"Bharti Walmart believes that FDI in multi-brand retail should absolutely be permitted, and ideally without any restrictions (i.e., fully open at 100 percent)," Raj Jain, president, Walmart India, said in a letter to the DIPP. Walmart has partnered with the Bharti group to operate cash-and-carry wholesale stores and intends to extend the tie-up to multi-brand retail.

Carrefour, which is also drawing up plans to roll out such wholesale formats, said FDI would help consumers, suppliers and farmers. It would "help in controlling inflation by offering more competitive and rationalized prices of products to consumers and reduction of wastage across India's farm-to-fork supply chain," said Jean Noel Bironneau, managing director, Carrefour WC&C India.

However, most small traders, shopowners and farmer organisations find the proposal "shocking" and say it would endanger the livelihood of four crore (40 million) people directly engaged in retailing food and non-food items, and and the 20 crore people dependent on them.

Non-governmental organisations, which claim to support the above mentioned groups, in their response, said the government should go by the parliamentary standing committee which called for a blanket ban on FDI in retail.

The committee, led by senior Bhartiya Janata Party (BJP) leader Murali Manohar Joshi, recommended a ban on domestic large corporates and foreign retailers from entering retail trade in grocery, fruits and vegetables and restrict their entry into retail trade in other commodities.

A majority of these organisations, including the Kisan Jagriti Manch, Bhartiya Majdoor Sangh and merchant associations from across the country, said that small scale manufacturers and farmers would be forced to sell their products at cheaper and uneconomic prices dictated by the multi national corporations (MNCs) and create oligopolistic market conditions in retail trade.

Also not in favour of blindly opening the door to foreign retailers is the Indian Institute of Management, Ahmedabad (IIM-A).

Sukhpal Singh of IIM-A said the DIPP's proposal based on numerous instances of FDI helping the entire retail value chain in other countries was misleading.

"Recent studies across chains and states reveal that other than lower transaction costs, the farmers did not realise any major benefits from dealing with these chains," said Singh.

"The experiences of various countries cited in the DIPP paper are sketchy and not really based on any analysis or insights. Therefore, they cannot be used to make an argument for or against FDI in retail," he added.

The main opposition party BJP has already made it clear it would oppose any move by the government to allow FDI in multi-brand retail.

"The BJP is against FDI in multi-brand retailing. There are nearly 10 crore (100 million) enterprises (small and medium enterprises and traders) in India and it is believed that they are growing by 15 percent annually. MNCs, with their predatory pricing policies and large cash reserves, will crush our retailers," said BJP spokesperson Nirmala Sitharaman.

The Left parties have also asked the government to desist from such a move and threatened nation-wide agitations.

* James Jose can be contacted at james.jose@ians.in
* The views expressed by the author in this feature are entirely his/her own and do not necessarily reflect the views of SME Times.