| Published on 18-12-2006 In National |
| Viewed 1377 times |
| Left can serve the nation better by being a watchdog than merely opposing FDI in retail industry |
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Written by
Americai V. Narayanan |
"In particular, the positive effects of foreign investment are likely to increase with the level of local capability and competition " --Stockholm School of Economics Abstract.
The left has criticized one more of the recent policies of the UPA on FDI. One of the reasons given for the nationwide strike on Dec 14 is about the FDI. Even the Prime Minister of China, the nation representing the working model of current communist movement, could not convince or shake off the Indian left's allergy to FDI. May be the left academicians are caught with what is prevalent in the USA--- 'not invented here syndrome'.
Fortunately for the Congress, which is a centrist party on economic, social or cultural issues, is able to move to the left and right with ease and be able to look at things with 'people first'. Dr. Manmohan Singh's Government has smartly understood the forthcoming criticism and opened FDI on retail outlets only on company-owned and branded outlets. Had the UPA government opened up the entire retail industry, then the left may have been justified in fearing a threat to jobs from the unorganized sector; mom and pop shops may face extinction which will affect the weaker sections of the community.
Before we get into the details of the pros & cons of the FDI in the retail sector let us look at the status of the retail sector in India today.
More than 10% of country's GDP today comes from the retail sector. This is estimated to be around Rs.900,000 crores. Out of this, organized retailing industry today accounts for a mere Rs. 35,000 crores. Retailing is the largest private sector in India and second only to agriculture in employment. India has approximately 15 million retail outlets.
Organized retailing is primarily urban centric, with its share, as represented in urban scenario, being projected as 15-20%. According to Biswadeep Gupta / Kanchan Singh, retail sector is growing at more than 30% in the organized sector that is driving the retail growth in India, contributing significantly to the growth of the economy. This kind of economic growth coupled with the successful summit at DAVOS where "Brand India" has been showcased, is leading to significant inflow of FDI and make India the second biggest destination of FDI including the retail industry.
Unlike China, Indian economy is primed both by domestic spending & exports.
Opening up the FDI only on corporate shops has significant advantage to the Indian economy. The advantages that FDI will bring to the Indian economy include:
- Bringing in efficiency into retailing which is one of the major problems in our economy. If one looks at the spread of margin between what the producer of goods get in agriculture compared to the price paid by the consumer, it will be highest in the fragmented, unorganized markets such as vegetable or street-end shops. Organized sector coming in to the retail will assist the producers and farmers get a better price for their produce, cutting out the middleman.
- It will not displace or directly compete with the existing retail outlets. The new corporate retail show rooms will add to investment in infrastructure and human resource development in training of its employees
- Already corporate India, including Reliance, Bhati Tel with Wallmart are getting into the retail market. Increased competition like that in airline, telecom, textile etc will bring in better deal for every one.
- More modern and standard infrastructure in retail sector will bring in cleaner and better place to shop, which will only increase the sales and GDP of the country.
- Organized retail sector will bring in better paying jobs for the poor than what they get in unorganized sector of retail today. Better labor practice and social security net can reach the poor.
- Significant portion of the unorganized retail sector does not fall into the net of the exchequer be it in terms of sales tax for the States, or income tax for the Centre. Organized retail sector will increase the tax revenue further and reduce black money and tax evasion.
- This organized sector may bring in cold chain and better storage, which we have been trying to do far so long by providing big incentives in the rural and semi urban areas. Without value addition, the farmers cannot boost their income and poverty will continue to stalk rural areas
- More organized retail will promote consumption that is needed to prime the economy to reach the double-digit growth level like China.
There is no doubt there is a flip side too. The left should use its influence with the government to guard against:
–Unfair trade practices like Predatory Pricing, in the absence of proper regulatory guidelines
–Monopoly and promote cartels that can be easily created
–cutthroat competition that will not promote incremental business
–Increase in real estate prices that will marginalize domestic entrepreneurs
MNCs will not be primarily be interested in targeting the Bottom Of the Pyramid (BOP) as consumers, and will not help increase locally generated products and services from locally owned businesses.
We should encourage the MNCs to follow the footsteps of Unilever, another MNC. Unilever had tied with organizations like SEWA. SEWA was approached by a Unilever subsidiary in India called Hindustan Lever. They wanted to sell their products to BOP members of SEWA in the rural areas. SEWA negotiated a partnership with Unilever to help them set up a rural distribution network that covered 530,000 households in 11 districts in Gujarat. With just a purchasing power of $2 per month, SEWA's turnover to Unilever has been about $7-8 million. The system has stimulated employment for 21,000 households.
Hence, checks are to be injected to ensure the overall growth of small and big retailers and to create a level playing field for all. One has to understand that like any other tool, FDI in any sector including retail sector is neither good nor bad per se. ' Compete or perish' has become a reality in the global village. We should effectively use this opportunity to increase the level of local capability and competition.
It is imperative that we regulate FDI properly to achieve the goals of our country to help the people in Bottom of Pyramid and raise economic activity in the country. Hence the left may be better off being a watchdog (regulator / moderator?) of the government to avoid the pitfalls, as opposed to just criticizing any FDI coming to India. That will prepare our nation better for the eventuality .
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