Dr. Pabitra Kumar Jena
The new Government in Delhi under the political strength of Aam Aadmi Party (AAP) has opposed the decision of the previous government with respect to FDI decision with a stroke of pen. The Arvind Kejriwal government on 13th May, 2015 said it will not allow Foreign Direct Investment (FDI) in multi-brand retail in the national capital. The Aam Aadmi Party had opposed FDI in retail back when it was in power in Delhi in January 2014. Sticking to its stand, the government said it will be not ready to “disturb the character of retail trade” in Delhi. Now a simple note of interrogation arises with respect to validity of such action and the economic and commercial impact of such decision on the economy of Delhi/NCR. Even if we accept intention of AAP is good for development of poor people which is short oriented indeed. However, in the long run FDI is expected to play an important role in the economy of Delhi in particular and India’s growth dynamics in general. India presents a huge opportunity to the world at large as an economic hub. Standing on the threshold of a retail revolution and witnessing a fast changing retail landscape, she is all set to experience the phenomenon of global village. India is the “promised land” for global brands. She tops in the list of emerging markets for global retailers and her retail sector is expanding and modernizing rapidly in line with economic growth. The future is promising; the market is growing, so government policies should become more favorable impact. But in Delhi instead of allowing FDI inflows the newly formed government represented by AAP has withdrawn the proposal of allowing FDI in multi brand retail sector. It is our endeavor here to raise some pertinent issues concerning consideration for development of poor people as well as development of business scenario in Delhi.
As the large retailers invest in generating the supply chain complemented with the government investments in public goods such as roads, energy, and primary and secondary education, the average costs of the supply chain will decrease overtime owing to both static and dynamic economies. One of the dynamic gains of supply chain investment would be reduction in transaction costs of business- business to business, and business to consumers such as information and search costs, contractual costs, and distributional costs. On the other hand, the opening up of the sector to FDI will lead to new economic opportunities and there will be more employment generation. According to a policy paper prepared by the Department of Industrial Policy and Promotion (DIPP), FDI in retail must result in backward linkages of production and manufacturing and spur domestic retailing as well as exports. The opening up of retail to FDI should be designed in such a way that many sectors – including agriculture, food processing, manufacturing, packaging and logistics reap benefits. It is understood that the multinationals that invest in retail business in India would also source Indian goods for their international outlets in a big way and thus provide a boost to Indian exports. Indian retail chains would get integrated with global supply chains since FDI will bring in technology, quality standards and marketing efficiency. FDI can be a powerful engine to spur competition in the retail industry due to the current scenario of low competition and poor productivity. The policy of single-brand retail was adopted to allow Indian consumers access to foreign brands.
The policy of allowing 100 per cent FDI in single brand retail can benefit both the foreign retailer and the Indian partner – foreign players get local market knowledge, while Indian companies can access global best management practices, designs and technological knowhow. By partially opening this sector, the government was able to reduce the pressure from its trading partners in bilateral as well as multilateral negotiations and could demonstrate India’s intentions in liberalizing this sector in a phased manner. Permitting foreign investment in food-based retailing is likely to ensure adequate flow of capital into the country and its productive use, in a manner likely to promote the welfare of all sections of society, particularly farmers and consumers. It would also help bring about improvements in farmer income and agricultural growth and assist in lowering consumer prices inflation (Discussion Paper on FDI, 2010).
According to the World Bank, opening the retail sector to FDI would be beneficial for India in terms of price and availability of products. Experience everywhere has shown that organized retailing tends to have a major controlling effect on inflation because large organized retailers are able to buy directly from producers at most competitive prices. The scale of operation and technology help organized retailers score over the unorganized players, giving the consumers both cost and service advantages. Government has opened up the real estate sector by allowing 100 per cent FDI in the construction projects. This is expected to tremendously boost the organized retail sector by enabling it to create better and modern infrastructure.
If the multi brand retail market is opened, then the pricing could also change and the monopoly of certain domestic Indian companies could be challenged. In the eventual analysis, the consumers will benefit in the form of potential lower prices due to enhanced and, possibly, tough competition in the market. Improved technology in the sphere of processing, grading, handling and packaging of goods and further technical developments in areas like electronic weighing, billing, barcode scanning etc. could be a direct consequence of foreign companies opening retail shops in India. Apart from this, by allowing FDI in retail trade, India will significantly flourish in terms of quality standards and consumer expectations, since the inflow of FDI in multi brand retail sector is bound to pull up the quality standards and cost-competitiveness of Indian producers in all the segments. It is therefore obvious that we should not only permit but encourage FDI in retail trade.
On the contrary, FDI in multi-brand retailing must be dealt with cautiously it seems to be going to create short run problems in employment generation. There is a school of thought that in the short run there will be huge job loss which will have direct impact on a large chunk of population. But counter argument against it is that when there will be development of infrastructure and transport facilities it will create huge job opportunities for general people in the long run. Finally, it shall not allow more FDI inflows, in multi brand retail. It is going to create exchange rate problem, which we have faced recently. So by keeping larger interest of general people and future of our economy FDI inflows should be allowed in each and every part of the country for regional balances and economic development.
Therefore, it is imperative for APP Government that they should reconsider their decision regarding FDI in retail for Delhi region otherwise national capital development will be at pledge state.
(The writer is an Assistant Professor at School of Economics, Shri Mata Vaishno Devi University, Katra, Jammu and Kashmir)
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