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The retail counter-revolution
- While Parliament was in session, the Cabinet met to approve the hitherto prohibited foreign direct investment in multi-brand retail, with a cap of 51 per cent on foreign equity that ensures majority ownership. Simultaneously, the cap on foreign equity investment in single-brand retail has been enhanced to 100 per cent, offering sole ownership rights to foreign investors.
- Foreign sales have been an important source of revenue for many of them amounting in 2007 to as much as 74 per cent in the case of Ahold of Netherlands, 52 per cent for Carrefour of France, 53 per cent for Metro of Germany, 22 per cent for Tesco of the United Kingdom and 20 per cent for Walmart of the United States.
- The power of these chains has been amply illustrated in other contexts, where they have been in operation. With deep pockets and international sourcing capabilities, they exploit economies in procurement, storage and distribution to outcompete and displace domestic intermediaries in the supply chain.
- The relationship with producers is that of an “oligoposony,” with a few buyers and a large number of sellers. With consumers, it is one of an “oligopoly” with few sellers and a large number of buyers.
- Thus, on the production side, the danger is that the prices paid to and returns earned by small suppliers, especially in agriculture, would be depressed because a few oligopolistic buyers dominate the retail trade. Given the precarious viability of crop production even at present, that shift could severely damage livelihoods.
- The immediate and direct effect would be a substantial loss of employment in the small and unorganised retail trade as well as in segments of the wholesale trade displaced by the big retail chains.
- According to the National Sample Survey Office's survey of employment and unemployment in 2009-10, the service sector category that includes the wholesale and retail trade (besides the much smaller repair of motor vehicles, motorcycles and personal and household goods) provided jobs for 44 million in the total workforce of 459 million.
- It is no doubt true that the impact of foreign-invested retail would be restricted to the urban areas since entry as of now is permitted only in cities with a population of more than one million. But this is where the employment in trade would be the highest. Twenty-six million out of the 44 million employed in the sector are located in urban areas.
- They exaggerate the direct and indirect employment that large retail would create and ignore the number of jobs they would displace. The requirement that the foreign investor should bring in a minimum investment of $100 million implies that the FDI being sought is in units that are more technology- and less labour-intensive.
- World Trade Organisation norms, “30 per cent sourcing is to be done from micro and small enterprises which can be done from anywhere in the world and is not India specific.” This would be impossible to implement and will only encourage international sourcing at the expense of domestic producers.
- As of now the retail chain works well, there are no noticeable shortages, and a large and diverse country is well serviced. None but the government argues that FDI in retail is a remedy for the relentless inflation the country faces.
