Implications of FDI in retailing
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Parliamentary Committee for tackling social and economic aspects
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Even as corporates are expecting the new Congress-led UPA (United Progressive Alliance) Government at the Centre to open up fully FDI (foreign direct investment) in retail sector, a Parliamentary Committee has argued for a total ban on even the domestic heavy-weight corporates from entering retail trade in grocery, fruits and vegetables. The 31-member panel headed by Murli Manohar Joshi has gone a step further and called for placing restrictions on big domestic players in
terms of opening malls and selling other consumer products.
The Parliamentary Committee report, tabled in both the Houses recently, is bound to keep the issue hot and make it that much difficult for the Manmohan Singh Government to push through the long-pending demand of corporates and the global investing community to let the FDI window open fully for the retail sector.
Some of its observations have been heard often in the past. Many of them have even been answered. But the committee is not convinced. More than anything else, the committee appears to be concerned over the larger social implications of allowing not just the FDI but also the big Indian corporates into retailing. Will it not make the field uneven for the neighbouring small shop owners? What will happen to them, who are not literate in the real sense, if driven out of business by competition from deep-pocketed biggies? What is the guarantee that the big players will not resort to predatory pricing to eliminate the small retail shop owners? More often than not, the biggies who enter retailing, especially in the food space, resort to contract farming. This, the committee feels, has serious implications for agricultural land and, consequently, for the country’s public distribution system. Not surprisingly, the committee has asked the department concerned in the Ministry of Agriculture to “have a serious look into these social and economic issues, which could adversely affect the traditional farmer-smaller retailer link, which had existed for thousands of years”.
Cash and carry licence
The committee did well to advise the Government to keep the systems in position before opening up the retail sector. In the interim, it has suggested that the Government should not issue any licences for “cash and carry” to anyone.
Since the “cash and carry” licence is used as a camouflage for doing retail trade through the back door, the committee feels that the “existing model of retailing is most appropriate in terms of economic viability”. While arguing for the protection of the existing system, the committee does open a small window of hope for those who advocate FDI in retail. It rightly wants the government to have legal and regulatory frameworks in place before embarking on any course to let FDI into retail. In this context, a couple of suggestions made by the committee merit a serious consideration by the Government. One, small retailers should have access to institutional credit. (We have seen how a Chennai-based retail brand, which owes huge sums, running to several crore, to a consortium of banks, going bust in the recent past). With ‘small and medium business’ becoming the focus point of the ruling Government, the suggestion for an institutional funding mechanism could go a long way in helping the cause of the small unorganised retailers, who constitute 95 per cent of the Indian retail industry which is growing at 8-9 per cent annually. Two, the big malls have a cascading effect on all fronts. While the protagonist of malls have focussed on their positive trigger effect on the economy, the larger social issues such as their impact on the environment, jobs et al have not been properly highlighted. “We need to look into the social aspects also. There is also a need to look into the environmental issues,” the committee feels. The policy-setters in the government are hooked on to near-term consideration and, in the process, give the long-term vision a slip. We have seen it happen in a few infrastructure initiatives.
Unified approach
As the committee argues, the country requires a unified approach to the retail issue and not states-driven initiatives. Since the issue of FDI in retail trade has generated quite a heat, the Government will do well to get all the loose ends tied before making any decisive move on this front. Since a Parliamentary panel itself has raised several serious points, the issue may well be revisited.
K. T. JAGANNATHAN
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