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Retail India: The Problem Within Despite being one of the largest employing industries in India and contributing a significant portion to GDP, it still lacks a clear policy which would allow Indian retail players to firmly establish themselves and enable them to face competition on an equal footing. /24-7PressRelease/ - DELHI, INDIA, December 05, 2005 - Indian retailing industry has made huge strides over the last 10 years. The retail trade in India is expanding by 22 per cent per annum with addition of 25 million middle class customers. Despite the recent boom in the retail sector in India, organized retail forms only around 3 per cent of the entire industry. Despite being one of the largest employing industries in India and contributing a significant portion to GDP, it still lacks a clear policy which would allow Indian retail players to firmly establish themselves and enable them to face competition on an equal footing. With heightened activity in the retail scenario the debate over whether FDI in the sector should be allowed or not is getting heated. Here there are two issues which are getting entwined. The first is the question of the benefits of organized retail, and the second is allowing FDI in the retail sector. There is no doubt that organized retail sector holds a number of benefits. The entry of the organized sector in retail trade is capable of mitigating, if not solving, the huge waste involved in the current system, simultaneously paying better prices to the producer and lower prices for the consumer. The recent arguments in favour of allowing FDI into the retail sector all pertain to organizing the retail sector. There is no argument to support FDI over investments by Indian retail players. Here the advocates of FDI in the sector need to understand that the social commitment which will come from local industry naturally will be absent in foreign companies entering the market. Foreign players might give in on some issues under pressure from the government but there overriding factor for all decisions will be the bottom-line. Organizing the retail sector is the need of the hour. But it has to be understood that change will bring with it a lot of upheaval and teething problems. The local retail playerslarge as well as small, need to be given support and time to adjust to changed environment. To bring in FDI at this hour will be an error of judgment, as it will not bring any significant benefit to the country. Investment bought in through FDI in retail will find its way back to the country of origin. Commerce and Industry Minister Kamal Nath stated recently that, "More investment has to flow into the retail sector, but it has to be seen whether the investment should be domestic or foreign," he said. He stated that the sector would be opened up only if labour was not displaced or replaced. The minister added that the government was studying the matter closely as Thailand had also faced serious problems with FDI in retail. The Left has been extremely vocal in its opposition to FDI in retail. They have also stated that they are not opposed to FDI, but bringing in FDI into the retail sector does not make any sense. Besides opposition from the Left and BJP, local retail groups like Pantaloon and RPG are strongly opposed to the idea. Their argument is that the Indian retail sector in the organized sphere is still in a nascent stage. It should be given policy support and time by the government to establish itself firmly. Indian industry is amongst the best in the world and is competing with the best in the world in various fields. In the retail sector, the local industry and big financial houses need to be allowed time to step up their retail plans and create enough barriers before the competition hits the shelves. A position paper prepared by the national retail committee of the Confederation of Indian Industry (CII) has said that FDI should be gradually allowed first in relatively less sensitive sectors. The paper argues that checks should be injected to ensure overall growth of the domestic retail industry and to create a "level playing field." CII has stated that the domestic retailers will need at least a few years time for the kind of capital formation that is required for their growth and development. Foreign players could displace the unorganized retailers because of their superior or financial muscle and induce unfair trade activities such as predatory pricing. The local retail industry should be allowed time and given policy buffers to organize itself and meet the challenge ahead on an equal footing. [N.P.A]