Why Oppose FDI in Retail?

 Public Policy: Why Oppose Foreign Direct Investment in Retail?

By:

Vijay Sardana

There is a growing debate about FDI in retail sector in India. There are all types of argument in favour and against the FDI in retail. There can be more than one reason to prevent FDI in retailing but at the same time there are many reasons to permit FDI in retail. Most of the argument is about how to protect employment of unorganised small shops. No doubt it is very important social and economic aspect but what about quality of products and services they are offering. I want to know, if people are willing to pay for safe and hygienic foods why as a country we are depriving them for having the better products. Why we don’t want people to have better quality of life by adopting better products and services. After all there is an additional cost to ensure safe food and proper display and delivery of products. Why our political class is not keen to have better quality of life for average citizens of India.

How many times in their life time after coming to power our political representatives enjoyed street food which they want common man should continue to enjoy. They need all good products from tax payers money like cars, personal residential facilities, pen, stationary, dresses, shoes, etc, but they don’t want common man to go for even safe food. This raises serious doubt about their approach, desire and ability to ensure welfare for common man in India.

Foreign money is permitted in all sectors but not in retailing seems illogical:

Investment in retailing is not hot money like stock market. It will be invested in developing local infrastructure, skills and systems. It is strange that we make liberal policy for stock markets where money can leave the country by click of the button, but we do not allow foreign money to come and develop domestic infrastructure and consumer facilities.

What is the logic and apprehension of policy makers?

Let me place few facts before you.

1.   We want foreign money to come and develop cold chain and warehouses, but foreign retailers’ money cannot buy food and fruits to keep in these storages. We want USA and Europe to liberalize their policies so that Indians can go and work there but we don’t want them to come here and work.

2.    We want major world retail players to buy Indian software but we don’t want them to come here and use the same technology to create same value which they are creating in other parts of the world.

3.    Our policy makers want self employment to grow in India and export their products but not willing that their buyers should come and set-up shops in India to sell their Made in India products.

4.    If we are keen to grow businesses in India, in that case why there are so many hurdles in getting licenses, permissions and bank loan. 

5.    Our policy makers want Indian farmers to earn more, but we don’t provide them good seed, fertilizer, electricity and irrigation facilities and don’t want any retail chain should also do the same by providing good knowledge and inputs to them.

6.    Our Policy makers’ want that our farmers must not sell in distress but also don’t want to provide storage facilities for their produce so that post harvest losses can be minimized.

7.    We want cold chain establishments from FDI but we don’t want foreign money to store and distribute fruits stored in that cold storage and  produced in India.

8.    We want foreign investment to come and invest in Indian warehouse and godowns but not willing that farmers should deal directly with them so that traders and brokers should continue to enjoy government supported monopoly and thrive under APMC licenses at the cost of farmers and consumers and continue to raise inflation?

9.    We can allow FDI in hospitals but not want FDI for distribution of safety food and safe drinking water. Our policy makers are not interested in solving source of public health problems.

10. They are keen to have more super speciality hospitals from FDI to come to India but don’t want FDI in retailing so that safe food and safe water can be delivered to consumers.

11. We are concerned about current account deficit, but we want to go aboard to study take foreign currency worth 10 billion dollars out for education but we don’t want foreign universities to come into India. What is the logic? When Indian universities can go and start campus, what is the problem for foreign universities in India?  Who will lose if foreign universities come to India. Only lose will be to private university owners not country and citizens.

12. We allow and want high speed internet to every citizen so that we can access what is happening around the world, but we don’t want foreign universities and TV channels to come and invest in India. What we are trying to protect?

13. We want FDI in petroleum oil exploration, but don’t want petroleum oil distribution by them.

It is difficult to understand the logic in doing so when we don’t have capital, we have limited technology and skills to undertake certain commercial activity, still we are not keen country should get world class know-how the same from those who can deliver.

With all these, still we have a dream India should become Superpower. 

Are we really serious about India’s growth and her future? If yes, where are the evidences to show action on ground?

Why FDI in retail is not a threat?

Let me share my experience with consumers around the country. Let me take you through my experience.

Stand at the gate of any super market or mall, what you will notice, large number of people are going in from the entry gate after proper checking. Equal numbers of people are coming out. Most of them do not have any carry bag or any item in their hand.

Now you move around inside the mall and retail shops, you will find most of the outlets with international brands are almost empty. The number of staff in such outlets is also bare minimum. What this indicates. That traffic is not beyond very minimal to sustain the store.

Now walk around a bit and move to budget stores like Store 99, Dollar Store, Haat bazaar, type of stores, you will find crowd looking at products which are not available in neighborhood store and are of low price. This is actually a place where average shopper in India look for value for money options.

Now enter the electronic show room, people are busy playing with gadgets and looking around for something exciting. Exploring the product and checking out its utility for them and then they will look at the price. If in doubt they will check about other models. And leave the gadget on the table with a hope to buy the same someday from somewhere, definitely not now and not from here, unless there is good discount.

Another apprehension in the mind of consumers is who will extend the service, because retailers say you should contact manufacturers directly. This adds to another uncomfortable situation for consumers. Shops in main market and in residential colony are willing to take these responsibilities for services but not the supermarkets and show rooms in malls are not keen on after sales services. No buyer is willing to go through the long procedure and bureaucracy of these big outlets. This discourages them to take a buy call on expensive products.

Now let us go to outlets like big bazaar, food bazaar, Spencer, etc. There is good crowd inside the stores and people are also buying products where there is good discount or offer. Ladies will look at daily item with good offers. As far as fresh foods are concerned, unless they are cheaper than neighbourhood shops they will not buy. Another serious issue with many stores are quality of product. Many items are offered cheap by these retail chains outlets but their quality is not up to the mark. Many times consumer buy due to low price but soon realize that they were given inferior quality. This leaves a very bad after taste in the consumers mind and they feel cheated. This looses faith on the outlets. Now if you see consumers are not even willing to buy even when discounts are offered. Consumers are becoming intelligent and using their own experience in decision making and not the promotional gimmicks of the retail outlets.

Now move ahead from these shops, you will find huge crowd in food courts. The biggest reason for the crowd in these food courts is clean and comfortable environment for people to sit and eat the food of their choice and variety. Unfortunately, in neighborhood eating outlets are either not hygiene with no proper sitting arrangement or overcrowded and people have to stand for their turn. Malls have filled this gap and doing good food business.

Now, come back and stand near the exit gate of the mall and observe what percentage of people coming out are carrying items they have purchased inside the mall. You will come to know the reality of the modern retailing world. This percentage may vary from city to city and location to location in the same city. This will give you a great insight about modern retail environment and consumer behavior.

It is high time our policy makers should also appreciate that common man on the street is not dumb. When he knows how to select their MPs and MLA and how to change them, they also know who to select which retail outlet is good for them and when to shift from one outlet to the other and for what.

FDI in Retail in India will benefit government more than consumers:

In my view, FDI in retail should be allowed. There are multiple benefits for the country.

1.    The infrastructure which will be created for retail chains will also be available for all players in the trade. Economy of scale is the name of the game. This will create better working environment even for small retail, shops. They will also offer better products for consumers.

2.    Our existing retail system will get face lift, like our petrol pumps became better when privatization started.

3.    Our Small scale industry will get technical inputs from these big retailers how to improve quality and packaging. Today no one is helping our SMEs and SSIs.

4.    Our retail outlets will become more competitive because today there is no comparison for the quality and price for the consumers. Only few leading brands try to dictate the price and rest have to follow. Private labels in retail outlets, made by Indian MSMEs, will bring bargaining power in the hands of consumers.

5.    Our storage, transportation and logistics industry will get a face lift and will learn to operate in an efficient manner.

6.    Government will get more revenue because all unbilled transacts are source of tax evasion, these retail outlets will ensure proper billing and government will get due share of revenue.

7.    Large number of new service industry will emerge to ensure proper product, packaging, delivery, housekeeping, after sales services, etc.

8.    This will also force people to upgrade their systems. Suppliers will become more organized.

Who will lose?

If they were so keen to protect small shop owners in the country, in that case why they permitted, large private capital was permitted in retailing sector. All major Indian companies are in retailing sector. Let us find out how many shops are there in India by retail chains and how many shops closed in India.

Total number of retail outlets in India will not be less than 15 lakhs but after all the investment large players are not able to open more than 5000 shops in total in a population of 1.2 billion.  

Nothing happened to neighborhood shops in our area. In fact, now people know when they should not shop in malls but in neighborhood shops because they have improved their service quality like better products, reasonable prices and complimentary home delivery.

High cost of petrol and high parking charges will promote neighborhood stores in place of large malls. Common man is sensible and always looks for value for money.

Short-sighted Political interest is stopping the growth of India:

Our political class are worried that their vote bank and donations from small shop keepers will suffer. Unfortunately they don’t want these shop keeps should move to a better business because if these small shop keeps will get better inputs, skills and knowledge base to operate or diversify into some other businesses. Their dependency of local administration for license, permission, etc will go. It means local Politician may not get enough visitors and funds to sustain their own agenda.

What is more important is, people those who oppose they have nothing to lose other their own power and political votes.

The best way to scare and mobilize people around them is by creating panic and create scare. The biggest threat is unemployment and earning insecurity for common man in India. This is a political fodder for all demonstrations and protests. The political parties those who oppose, when they come to power do nothing to solve it. If they solve the problems of common man, what is going to be the agenda for the next election?

This is not the first time these tricks are used. One Chief Minister announced, he will not allow computers and IT in his state to protect employment. It is another story that he married his daughter to an IT professional.

In this country, union leaders organized protests against installation of Fax machines in government offices so that job of office boys and messengers can be protected. Unfortunately Fax machine life was short lived due to email. Now fortunately, they can’t stop the world, because now internet is beyond their power and is a global force and well accepted by every citizen around the world. Still here and there, there are attempts to stop the freedom of expression either by blocking internet, TV channels and free press. The same mind set is operating when it comes to FDI in retailing.

Few sections of political class will oppose whatever you do. Because when they oppose, they get noticed and they get publicity. This demonstrates their power. What else a political person is looking for?

Possible outcome:

Sooner or later country has to allow FDI in retail because India is becoming import depended country. Growing Current account deficit is clear evidence of the same. Moreover, we need FDI in many other sectors to upgrade our infrastructure.

How long we can protest against FDI in retail. In my view it is just a matter of time. As soon as we have strong government at center this will happen. Initially there will be protest by few political outfits to project that they are will with people those who will lose job so that potential vote bank can be protected.

But like all other things, common man will forget this issue and move on. Politicians also know this. That is why they want to continue to protect so that their diminishing relevance can be projected to common man time and again.

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