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Misplaced obsession
- Foreign investors will be permitted to enter the hitherto prohibited multi-brand retail segment and hold equity of up to 51 per cent in the units established.
- The opposition to foreign direct investment in the retail sector stems from a number of well-grounded fears. FDI in retail would introduce competition from large players with deep pockets and international sourcing capabilities who would be able to exploit economies in procurement, storage, and distribution to out-compete smaller traders and subordinate myriad small suppliers. The immediate and direct effect would be a significant loss of employment in the small and unorganised retail trade displaced by the big retail firms.
- The government's claims to the contrary are questionable. They exaggerate the direct and indirect employment that large retail would create and ignore the number of jobs they would displace. Conditions on foreign investors, such as the requirement of a minimum investment of $100 million and entry permission only for cities with populations exceeding one million are not material.
- And the requirement that 30 per cent of manufactured or processed products sold should be sourced from small and medium enterprises would be impossible to implement, especially because it applies to such producers from anywhere in the world.
- Prices paid to and returns earned by small suppliers, especially in agriculture, would be depressed because a few oligopolistic buyers dominate the retail trade.
- Moreover, once the retail trade is concentrated in a few firms, retail margins themselves could rise, with implications for prices paid by the consumer, especially in years when domestic supply falls short.
