Wednesday, December 12, 2012

FOREIGN DIRECT INVESTMENT & THEREOF

MINISTERIAL STAFF ASSOCIATION | 4:11 PM |

With the government campaigning for FDI in retail, the question is, is it really going to help? If yes, then whom?

Today, the ministry of commerce and industry took its campaign to promote FDI (Foreign Direct Investment) in retail to the literate population of India, with full page advertisements in newspapers.

The advertisement claims that such direct investment will bring huge benefits not only to the farmers but to the society at large and that it will generate over 10 million new jobs and so on. Naturally, it does not give any time frame to achieve this end.

 The ministry calls this as “another revolutionary leap” for the Indian economy. Reading such an ad makes it nice, but whether it will truly benefit the people in the long run remains to be seen. At least in US, it did not do so, according to the media.

The first and foremost fear is that farmers will be exploited by the predatory pricing policy of the large retailers, a job that is probably and already being done by a host of middlemen. So, instead of many such middlemen, there will one source where the farmer will face a single-window ‘clearance’, and that of the FDI retailer!

Having said that, will this process reduce the ultimate cost that the actual consumer has to pay for the farm products? Yes, in more ways than one, as the present Indian retails and supermarkets reveal.

Let's take a look at any Indian major city, like Bangalore, for instance.  There are several big business houses in retail, such as Reliance, Tatas, Goenkas, and supermarkets like Spar, Big Bazaar, etc to name a few.  In this category, we could include government sponsored HOPCOMs too.

There is intense competition amongst all these organizations. The pricing is sharp and the range of products covered is going up by the day.

And who are the buyers? They are the growing middle-class rich consumer society, where the chances are that both husband and wife earn a living and have a reasonably comfortable lifestyle. In all probability, they shop once in a week to make the purchases and do it methodically; no spur of the moment purchase, but needs are listed and shopping is done at leisure on chosen days.

The only thing that is left to buy is the odd item that may fall short which the family member at home or the cook may resort to purchase from the nearest Kirana shop or buy from the cart vendor, whose prices are at least 50% higher than the retailers mentioned above. This is based on the actual experience of the writer’s family.

FDI in retail is not a simple exercise to be covered in a single article but an in-depth study will take quite sometime and its impact cannot be visualized easily. If Reliance and Big Bazaar have come to stay, so will the FDI in retail, in due course.

FDI in retail will be subject to a lot of discussions and scrutiny. To generalize and compare how other countries have fared and still let kirana (small shops in road corners) survive or bring about better returns to farmer is a futile exercise. The conditions in India are different. We need to clearly spell out some basic pre-conditions that have to be complied within a specified time-frame, failing which, the licensee will have to pack up and go home.

a) At least 30% of the indigenous farm produce will have to be retailed
b) Each FDI-R licensee be given the choice of seven to 10 locations where it can commence its actual retail operations
c) These operating centres will have to be supported by actual infrastructural development of warehouses, cold storage and transportation logistics in identified sources of supply at the produce points
d) The next set of new cities will be after successful performance, a minimum of 18-24 months later, with the same conditions relating to infrastructure development or by expansion of existing ones
e) The activities of the FDI-R licensee will be subject to a close check and follow-up by a regulator who will maintain a watchdog committee for keeping a track of purchase pricing to retail selling; of the actual commitments in terms of fulfillingemployment growth and how these actually are benefiting the country in terms of taxes earned
f) These FDI-R licensees should not become the single largest selling point for marketing products of other countries when identical or similar products of indigenous makes are readily available.

These measures would be the first of many that one can think of as a start.
source:-http://www.moneylife.in/article/is-fdi-in-retail-good-or-bad/28604.html

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