FDI FOR:

This is a structural change. I don't believe modern retail can expand fast enough to raise real wages. What happened in Thailand is not a predictor, what will happen here. In the next 20 to 30 years, do you want small retailers to have same share what it is today. I think it is completely wrong. This is like saying when taxis were introduced the share of tangas (horse cart) went down, one could bring them back, no. I think it is complete misreading because you need to look at, do you want modernisation of retail sector or not. If you want modernisation of retail sector, you want a upward pressure on quality of employment, modern retail produces better quality of jobs. We have seen the benefits of the 1991 reforms. The cellphones we carry, TV channels we watch, vehicles we drive, the appliances we use - are all a result of the liberalisation that were initiated two decades ago. People presume Wal-Mart, with its 51% highly-regulated equity in a Indian venture, will be able to do what Reliance Fresh and Big Bazaar could not. The corporate Indian retail stores have been around for years. And yet, kirana shops flourish across the country. China, Malaysia, Thailand, Philippines are just a few examples of emerging economies that have allowed multi-brand retail and have had no major upheavals or large-scale unemployment.

Against:

FDI in retail in Thailand where 67 per cent of the kirana shops had to be closed down.

The impact on retail which is the second biggest employer in India with 44 million jobs.

Government argument
* Huge investments in the retail sector will see gainful employment opportunities in agroprocessing, sorting, marketing, logistics management and front-end retail. * At least 10 million jobs will be created in the next three years in the retail sector. * FDI in retail will help farmers secure remunerative prices by eliminating exploitative middlemen. * Foreign retail majors will ensure supply chain efficiencies. * Policy mandates a minimum investment of $100 million with at least half the amount to be invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing. This is expected to considerably reduce post-harvest losses. *This will have a salutary impact on food inflation from efficiencies in supply chain. This is also because food, which perishes due to inadequate infrastructure, will not be wasted. * Sourcing of a minimum of 30% from Indian micro and small industry is mandatory. This will provide the scales to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology upgradation and income generation. * A strong legal framework in the form of the Competition Commission is available to deal with any anti-competitive practices, including predatory pricing. * There has been impressive growth in retail and wholesale trade after China approved 100% FDI in retail. Thailand has experienced tremendous growth in the agro-processing industry. * In Indonesia, even after several years of emergence of supermarkets, 90% of fresh food and 70% of all food is still controlled by traditional retailers. * In any case, organized retail through Indian corporates is permissible. Experience of the last decade shows small retailers have flourished in harmony with large outlets.

Opposition's argument
* Move will lead to large-scale job losses. International experience shows supermarkets invariably displace small retailers. Small retail has virtually been wiped out in developed countries like the US and in Europe. South East Asian countries had to impose stringent zoning and licensing regulations to restrict growth of supermarkets after small retailers were getting displaced. India has the highest shopping density in the world with 11 shops per 1,000 people. It has 1.2 crore shops employing over 4 crore people; 95% of these are small shops run by self-employed people.

* Global retail giants will resort to predatory pricing to create monopoly/oligopoly. This can result in essentials, including food supplies, being controlled by foreign organizations. * Fragmented markets give larger options to consumers. Consolidated markets make the consumer captive. Allowing foreign players with deep pockets leads to consolidation. International retail does not create additional markets, it merely displaces existing markets. * Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources. This has been the experience of most countries which have allowed FDI in retail. * Argument that only foreign players can create the supply chain for farm produce is bogus. International retail players have no role in building roads or generating power. They are only required to create storage facilities and cold chains. This could be done by governments in India. * Comparison between India and China is misplaced. China is predominantly a manufacturing economy. It's the largest supplier to Wal-Mart and other international majors. It obviously cannot say no to these chains opening stores in China when it is a global supplier to them. India in contrast will lose both manufacturing and services jobs.

Times View
In principle, governments should not prevent anybody, Indian or foreign, from setting up any business unless there are very good reasons to do so. Hence, unless it can be shown that FDI in retail will do more harm than good for the economy, it should be allowed. A major argument given by opponents of FDI in retail is that there will be major job losses. Frankly, the jury is out on whether this is the case or not, with different studies claiming different findings. Big retail chains are actually going to hire a lot of people. So, in the short run, there will be a spurt in jobs. Eventually, there's likely to be a redistribution of jobs with some drying up (like that of middlemen) and some new ones sprouting up. Fears of small shopkeepers getting displaced are vastly exaggerated. When domestic majors were allowed to invest in retail, both supermarket chains and neighbourhood pop-and-mom stores coexisted. It's not going to be any different when FDI in retail is allowed. Who, after all, will give home delivery? The local kirana. Why would anyone shun them? If anything, the entry of retail big boys is likely to hot up competition, giving consumers a better deal, both in prices and choices. Mega retail chains need to keep price points low and attractive that's the USP of their business. This is done by smart procurement and inventory management: Good practices from which Indian retail can also learn. The argument that farmers will suffer once global retail has developed a virtual monopoly is also weak. To begin with, it's very unlikely that global retail will ever become monopolies. Stores like Wal-Mart or Tesco are by definition few, on the outskirts of cities (to keep real estate costs low), and can't intrude into the territory of local kiranas. So, how will they gobble up the local guy? Secondly, it

can't be anyone's case that farmers are getting a good deal right now. The fact is that farmers barely subsist while middlemen take the cream. Let's not get dreamy about this unequal relationship. India's FDI inflows have improved since 2005, perhaps at China's expense. In this context, the expected FDI inflows from retail are not significant. However, retail FDI can lead to FDI flows in other sectors and improve our BoP situation. Foreign direct investment (FDI) in the retail sector has been at the epicentre of national debate. Much has been said on India possibly losing out on investment by sending a wrong policy signal. But do we really need to get so worked up? INDIA AS FDI DESTINATION Considering the anticipated level of inflows on account of FDI in retail, there may not be much reason to worry. During 2000, India attracted significantly lower FDI ($3.5 billion) than many other South-East Asian countries, such as South Korea ($10. 5 billion), Thailand ($6 billion) and Malaysia ($5 billion). However, an interesting pattern has started to emerge since 2005. FDI inflow into India increased by leaps and bounds, from $7.6 billion in 2005, to $35 billion in 2009. FDI flow in the whole of East Asia and the Pacific remained more or less constant during this period $104 billion in 2005 and $102 billion in 2009. For China, the figure is $79 billion in 2005, and around $78 billion in 2009. In 2000, India's share among middle-income countries, in terms of attracting FDI, was only 2.4 per cent, compared with China's 26 per cent. In 2009, China's share fell to 22 per cent, whereas India's share increased to 10 per cent (Global Development Finance: Country and Summary Data 2011). India's gain has been at the cost of China losing out in terms of being a favourable FDI destination. CHINA'S PROBLEMS India has outdone China due to the high inflation rate in the latter country. Wages of migrant workers, land, property rents and power prices, have all registered an increase in China. Measured as a year-on-year basis as of November 2010, labour costs went up by 21 per cent, and the home prices across 70 cities in China went up by 7.7 per cent. Property prices have also been on the rise, despite the government having ownership rights over land indicating a real-estate bubble. What is evident from data is also being witnessed in reality. Multinationals such as Ford and Hyundai are shifting their manufacturing base from China to India. During the early part of last fiscal, India exported 2,30,000 cars, vans, sports utility vehicles, and trucks a growth of 18 per cent, whereas Chinese exports have tumbled 60 per cent to 1,65,000 units. Perhaps due to these reasons, Nokia and Lotte, are setting up their manufacturing base in India. It is no surprise, therefore, that India has attracted, on an average, an annual FDI inflow of $20.4 billion per annum between 2006 and 2009.

The estimated inflow from FDI in retail, of $3 billion over the next five years, seems modest in comparison. To get a sense of proportion, the Reserve Bank of India generally uses this sum of money daily in the foreign exchange market. Even so, there are reasons to be concerned if FDI in retail were to be stalled in the long run. So, what are the problem areas? SUPPLY LOGISTICS FDI in retail will bring down inflation by investing in supply chain logistics, that is, by investing in transport and refrigerated storage necessary for perishable items. Typically, if a farmer were to sell his produce, he needs to bring it to the local market where he usually auctions it to the retailer, who, in turn, will sell to the final consumers. This process of auctioning in the mandi (central market) is facilitated by the middleman, who charges a commission from the farmers. Add to this the cost of bringing the agricultural produce to the local market; the price difference between what the farmers get and what the consumers pay is what society loses out due to inefficiency. By investing in supply chain logistics, the players in multi-brand retail will reduce the cost, and bring down inflation. They will procure the produce directly from the farmers, keep it in their storage, and transport it directly to their retail outlet. It is worthy to note that there is a huge investment involved to get the supply chain logistics in place something that FDI in retail promises. Those who have been arguing that the local kirana and the marginal farmers may be hurt the former losing out on business, and the latter not getting the right price are not right. Currently, the local kirana, and retail outlets such as Reliance Fresh, Tata-Tesco, and Spencer, to name a few, are co-existing comfortably with each other. Marginal farmers also stand to gain. Recent evidence suggests that marginal farmers who have entered into contracts with Pepsi India have on average realised double the price in comparison with the local mandi and the local mahajan (in absence of the local mandi). This is an eye-opener for those suggesting that multinationals will squeeze the farmers by not offering them the right price. Experience from around the globe suggests that the local kirana needs to worry from the spread of e-commerce, and not the presence of corporates in the retail sector. India badly needs corporatisation of the agriculture sector to even out distribution of income. The ITC and Pepsi examples have shown that, in their best interest, corporates directly get in touch with the farmers, and give them the necessary information on how to increase crop output and productivity. It is to be noted that the agriculture sector receives minuscule investment, while supporting the livelihoods of around 55 per cent of the population. RIGHT POLICY SIGNAL The UPA government also stands to gain substantially by sending the right policy signal. Moreover, FDI in retail can bring in forms of FDI, at a time when our trade figures aren't doing really well. The trade deficit for April-October, 2011-12, was estimated at $94 billion, which was higher than the deficit of around $85 billion during April-October, 2010-11.

India's credit-worthiness can improve, with more FDI inflow resulting from reforms. International rating agencies usually look at total foreign exchange reserves and the FDI inflow as a criteria for rating any country. Tailpiece: Mamata Banerjee is smart, and is playing her cards right. She has already got Rs 8,750 crore, out of her demand for Rs 19,000 crore as part of the Bengal package. Who knows, she might actually give in if the UPA government meets her demand.

FDI in retail: some unanswered questions

Over the past few weeks, Indian newspapers have been consistently giving prominent display to stories concerning FDI in retail. Naysayers and others were both quick to voice their opinions on the issue. Proponents of FDI in retail have backed down for now, giving in to popular sentiment. However, questions still aboundwould FDI in retail have been a game-changer or would it have brought about the doom of many an Indian kirana store? To me, it is evident that the urban Indian consumer would have undoubtedly benefitedmainly in terms of buying better produce at lower prices, and who wouldnt be happy with that? But what of the small-scale farmer at the other end of the line? Would he have stood to earn a better price for his produce, or would have lost his daily wage altogether? In India, where agriculture is the highest contributor to GDP and employs close to 50 per cent of the population, answering these questions correctly becomes crucial. Price cut at whose cost? As retailing markets have become saturated in most developed countries, such as the USA and the UK, supermarket chains have expanded with amazing speed across the rest of world, and continue to do so even today. Across the world, as supermarket chains have grown from strength to strength, they have acquired greater power over the entire supply chainstarting from agricultural production and processing to wholesale and retailingat many times owning and running entire farms and plantations. This puts them in the unique position to bargain and continually press suppliers and farmers for terms more advantageous to them. This is possible given economies of scale typical of huge retailerspile them high and sell them cheap. Indeed, supermarkets have become the ones calling the shots as far as prices are concerned. Urban consumer may benefit, but what about marginal farmers and the environment?Consider an example: in 2003, Asda, a subsidiary of Walmart in the UK, decreased its margin on bananas from 32 to 22 per cent in order to gain an advantage with a lower shop floor price, leading their competitors to respond in a likewise fashion. However, neither Asda nor its competitors were swallowing those cuts through reductions in their own margins; instead, these cuts were passed on to their suppliers, in this case, poor plantation workers in Costa Rica. Their daily wages reportedly fell from US $12-15 per day in 2000 to US $7-8 per day in 2003, due to such manoeuvres. In fact, as ActionAid International reports, in a perverse cycle, such actions help supermarkets earn higher margins and larger profits, thus giving them the upper hand to invest more and increase their dominance even further. So, the buy-one-get-one-free offer really means that the supplier has ended up paying for it. Who benefits?

Furthermore, wide-ranging control over the supply chain has given supermarkets the power to choose who will supply them. Traditionally, they have preferred to buy from a small number of large farms, rather than a large number of small ones. Such transactions are not only easier to organise for the supermarkets, they are also highly helpful in capitalizing on the more intensive production methods which often require rigorous control. This also helps the large farms given that they, too, can benefit from economies of scale, which in itself is very important as prices of products may fall so low that any producer without such economies of scale may go out of business. What then happens to the small farmer? According to a 2004 report by the Food and Agriculture Organization (FAO), Carrefour, Frances largest supermarket chain, switched to buying melons from just three growers in Brazil in order to supply all its Brazilian stores, and ship to distribution centres in as many as 21 countries. Another FAO report reveals that in less than five years, Thailands leading supermarket chain reduced its list of vegetable suppliers from 250 to a mere 10, and between 1997 and 2001, more than 75,000 small-scale dairy farmers lost their livelihoods due to this centralisation or consolidation of supplier bases. Cost to environment There are environmental consequences as well. There are huge (and unfortunately, mostly overlooked) implications for soil quality, water resource depletion and deforestation which largescale, intensive agriculture brings with it. Globally known examples include the threat to orangutans in Indonesia on account of deforestation to grow ever larger oil palm plantations, the monoculture cropping of soya in Brazil, Paraguay and Argentina, and the prohibitively high usage of pesticides in banana plantations. These environmental abuses have become known mostly thanks to efforts of environmental groups such as Greenpeace. On the flip side, the retail giant Walmart (its fiscal year 2010 sales was US $405 billion) unveiled what it refers to as its 'Global Sustainable Agriculture Goals' in late 2010. In it, the retailer pledges to buy more from small and mid-sized farmers around the world; reduce food wastage; and sustainably source key agricultural products. As a country-specific commitment for India, Walmart has promised to source 50 per cent of its fresh produce through its Direct Farm Program. As an example of the latter, there are reports of Walmart having set up 36 direct purchase bases in over 14 Chinese provinces and municipalities, benefiting 393,000 farmers to date. The key definition would probably pertain to whom Walmart will identify as small-sized farmers in the Indian context. Whatever decision the Indian government finalises for FDI in retail in the future (the question will no doubt be brought up again), it must do so keeping in mind the implications for the real common man.