During parliament debate in 2012, BJP had vehemently opposed foreign direct investment (FDI) in multi-brand retail (MBR) arguing that this would affect millions of traders besides small and medium enterprises.
In run up to general elections, BJP’s prime ministerial candidate, Narendra Modi hinted at reviewing party’s stance when he opined that our traders should gear up to face competition from organized retail. He exuded confidence they can do!
However, in its manifesto released on April 7, 2014 BJP categorically ruled out FDI in MBR while welcoming it in all other sectors to give a boost to jobs, build assets especially infrastructure and access to niche technology and special expertise.
Now, Nirmala Sitharaman, Minister of State with independent charge (MoS-IC) for commerce and industry has reiterated the stance. Articulating government’s thoughts, she states:-
“At this stage, the party position is very very clear. We have explained about FDI in multi-brand retail (MBR) that it probably is not best opened up now because medium and small size traders or small farmers have not been adequately empowered….if you open up the floodgates of FDI in MBR, it may affect them”.
This is reminiscent of a line of reasoning Arun Jaitely had offered when confronted that the idea of FDI in retail was contemplated by none other than NDA in 2004. Jaitely alluded to the need for giving time to traders to build their capability and resilience to face the onslaught of MNCs.
From formulation given by Nirmala Sitharaman “At this stage …” it is abundantly clear that in principle, BJP is not averse to FDI in MBR (in sync with its 2004 stance). However, medium and small size traders or small farmers would need time to brace up as ‘they have not been adequately empowered…’.
Is empowerment an issue at all? Do traders or small farmers face any threat? If, yes when would they be ready to countenance it? What is the time frame? What will government do to catapult them in to that position?
This triggers yet another niggling question. If, these issues are really so serious, why were these not flagged earlier? Why did BJP not pressurize UPA dispensation (2004 – till date) to create the required level playing field?
A reality check is needed to ascertain situation on ground zero. Indian retail market is worth around $500 billion. The retail-scape is largely of mom-and-pop or kirana stores with organised retail occupying barely 5% of it.
Indian corporate viz., Birla, Bharati, Ambani etc – present in this space for more than a decade – have not displaced retailers. This is despite former facing no encumbrances of type put on MNCs (investment and sourcing norms etc).
What then, makes government apprehensive about MNCs? The usual rhetoric that they have pockets deep enough to annihilate retailers does not cut ice. Globally, Wal-Mart may be a US$ 500 billion company. How is this relevant to Indian situation?
A subsidiary of an MNC has to operate as a viable enterprise on its own. Given cost of acquiring land (with new law on land acquisition, this has increased manifold) and other infrastructure, a super-market set up by it can’t sell cheaper than a kirana store.
The threat to street corner shop is imaginary! Apart from lower overheads, its real advantage lies in ‘neighbourhood’ location. This offers customers huge convenience in buying (even in odd hours). Even door-to-door delivery can be arranged.
A super/hyper-market – whether owned by a Bharati or Wal-mart or a joint venture of two – cannot even dream of matching these advantages enjoyed by mom-and-pop store.
That apart, given scorching pace at which retail market is growing, there is enough room for accommodating more players. The two categories can co-exist, super/hyper-markets catering mostly to niche families who would like to combine buying with pleasure.
Perceived threat to small farmers is also unfounded. Far from that, allowing FDI in MBR together with dismantling of archaic APMC acts will give them better opportunities to sell their produce, fetch higher price and boost their incomes.
If today farmers are incapacitated, it is due to their being forced to sell only in mandis and lack of proper storage, handling and transport. This results in quantity loss (esp in fruits & vegetables) and low price due to poor quality and high rejection rate.
There are intermediaries aplenty between the farmers and consumers. The cascading effects of margins/commissions besides taxes/duties along the supply-chain lead to high costs for consumer. While, customer pays more, farmer does not get the benefit.
Farmers can come out of this trap if only there are buyers waiting at his doorsteps just after crop harvest and willing to give them a good price. This is where FDI in MBR opens one more channel besides Indian corporate and traditional intermediaries (arathiyas).
While, government has to take lead in building roads, investment in other infrastructure viz., handling, storage, grading, quality control and transport etc will be driven by a policy environment that encourages both domestic and foreign players.
The government should focus on getting policy environment right by allowing FDI in MBR. In tune with Modi’s mantra of ‘minimum government and maximum governance’, it should also refrain from putting any conditions like minimum investment in back-end infra etc.
Capping foreign equity at 51% in MBR makes no sense either. By doing so, government would only be delaying investment as foreign investor would spend time looking for an Indian partner, making deals and getting requisite approvals.
100% FDI in MBR has an added advantage of creating a level playing field vis-a-vis domestic companies. By fostering competition between the likes of Wal-mart on one hand and Bharati on the other, it should be possible to garner a win-win situation for both consumers and farmers.
The government already permits 100% FDI in wholesale cash-and-carry business without any ownership- or sourcing-restrictions. These outlets sell to shopkeepers, restaurants and other institutional customers. FDI in retail is a logical extension of this. This will also be in sync with plans to allow 100% FDI in e-commerce.
Modi will do well to liberate from embargo in BJP manifesto in the interest of giving a boost to economy and jobs.