After months of discussion,  the issue of FDI in retail is being deliberated in the Lok Sabha today.  In September 2012, the Cabinet had approved 51% of FDI in multi-brand retail (stores selling more than one brand).  Under these regulations, foreign retail giants like Walmart and Tesco can set up shop in India.  Discussions on permitting FDI in retail have focused on the effect of FDI on unorganised retailers, farmers and consumers. Earlier, the central government commissioned the Indian Council for Research on International Economic Relations (ICRIER) to examine the impact of organised retail on unorganised retail. The Standing Committee on Commerce also tabled a report on Foreign and Domestic Investment in the Retail Sector in May, 2009 while the Department of Industrial Policy and Promotion (DIPP) released a discussion paper examining FDI in multi-brand retail in July, 2010.  Other experts have also made arguments – both in support of, and in opposition to, the move to permit FDI in retail sales. The table below summarises some of these arguments from the perspective of various stakeholders as collated from the above reports examining the issue.

Stakeholder

Supporting arguments (source)

Opposing arguments (source)

Unorganised retail
  • No evidence of impact on job losses (ICRIER).
  • The rate of closure of unorganised retail shops (4.2%) is lower than international standards (ICRIER).
  • Evidence from Indonesia and China show that traditional and modern retail can coexist and grow  (Reardon and Gulati).
  • Majority of small retailers keen to remain in operation even after emergence of organised retail (ICRIER).
  •  Unorganised retailers in the vicinity of organised retailers saw their volume of business and profit decline but this effect weakens over time (ICRIER).
  • Other studies have estimated that traditional fruit and vegetable retailers experienced a 20-30% decline in incomes with the presence of supermarkets (Singh).
  • There is potential for employment loss in the value chain. A supermarket may create fewer jobs for the volume of produce handled (Singh).
  • Unemployment to increase as a result of retailers practicing product bundling (selling goods in combinations and bargains) and predatory pricing (Standing Committee).
Farmers
  • Significant positive impact on farmers as a result of direct sales to organised retailers.  For instance, cauliflower farmers receive a 25% higher price selling directly to organised retailers instead of government regulated markets (mandis).  Profits for farmers selling to organised retailers are about 60% higher than when selling to mandis (ICRIER).
  • Organised retail could remove supply chain inefficiencies through direct purchase from farmers and investment in better storage, distribution and transport systems.  FDI, in particular, could bring in new technology and ideas (DIPP).
  •  Current organised retail procures 60-70% from wholesale markets rather than farmers. There has been no significant impact on backend infrastructure investment (Singh).
  • There are other issues like irrigation, technology and credit in agriculture which FDI may not address (Singh).
  • Increased monopolistic strength could force farmers to sell at lower prices (Standing Committee).
Consumers
  • Organised retail lowers prices. Consumer spending increases with the entry of organised retail and lower income groups tend to save more (ICRIER).
  • It will lead to better quality and safety standards of products (DIPP).
  •  Evidence from some Latin American countries (Mexico, Nicaragua, Argentina), Africa (Kenya, Madagascar) and Asia (Thailand, Vietnam, India) reveal that supermarket prices for fruits and vegetables were higher than traditional retail prices (Singh).
  • Even with lower prices at supermarkets, low income households may prefer traditional retailers because they live far from supermarkets, they can bargain with traditional retailers and buy loose items (Singh).
  • Monopolistic power for retailers could result in high prices for consumers.

Source: ICRIER [1.  "Impact of Organized Retailing on the Unorganized Sector", ICRIER, September 2008]; Standing Committee [2.  "Foreign and domestic investment in retail sector", Standing Committee on Commerce, May 13, 2009]; Singh (2011) [3. "FDI in Retail: Misplaced Expectations and Half-truths",  Sukhpal Singh, Economic and Political Weekly, December 17, 2011];  Reardon and Gulati (2008)  [4. "Rise of supermarkets and their development implications," IFPRI Discussion Paper, Thomas Reardon and Ashok Gulati, February 2008.]; DIPP [5. "Discussion Paper on FDI in Multi-brand Retail Trading", Department of Industrial Policy and Promotion, July 6, 2010]


In recent public discourse over lobbying, two issues that have underscored the debate are:

  1. Greater transparency in the policymaking process, and
  2. Equality of access for all stakeholders in engaging with the process.

There is a need to build linkages between citizens and the policy making process, especially by strengthening scrutiny before a Bill is introduced in Parliament. Currently, there is no process established to ensure pre-legislative scrutiny by the citizenry. Other democracies incorporate several measures to enhance public engagement in the pre-legislative process. These include:

  • Making all Bills available in the public domain for a stipulated period before introducing them in the legislature. This includes, publishing these Bills in forms (language, medium etc) that are accessible to the general public.
  • Making a report or Green paper on the legislative priorities addressed by the Bill available for citizens.
  • Forming adhoc committees to scrutinise the Bill before it is piloted in the House.
  • Having Standing Committees examine the Bill before introducing it in the House.
  • Providing a financial memorandum for each Bill, which specifies the budgetary allocation for the process/bodies created by the Bill.
  • Creating online fora for discussion. For the sections of the stakeholders who have limited access to the internet, efforts are made to proactively consult them through other media.
  • Expanding the purview of citizens’ right to petition their representatives with legislative proposals.

There are several instances, in the last few years itself, wherein civil society groups have played an active role in the development of pre-legislative scrutiny in India.

  • Public consultation with cross-section of stakeholders when drafting a Bill: The Right to Information Act is seen as a landmark legislation when highlighting the role of civil society actors in the drafting of a Bill.  It also serves as a prime example for how it the movement mobilised widespread public opinion for the Bill, bringing together different sections of the citizenry.
  • Public feedback on draft Bills: In several cases, after a Bill has been drafted the concerned ministry or public body publishes the Bill, inviting public comments. The Right to Education Bill, the National Identification Authority Bill and the Draft Direct Taxes Code Bill 2009 are recent cases in point. These announcements are made through advertisements published in newspapers and other media. For instance, the government has recently proposed to amend the rules of the RTI and has invited public feedback on the rules by December 27.
  • Engaging with legislators: It is important to expand engagement with lawmakers after the Bill has been introduced in Parliament, as they will determine what the law will finally contain.  This is done by approaching individual legislators or members of the committee which is likely to examine the legislation. Standing Committees invite feedback on the Bill through newspaper advertisements.  For instance, the Standing Committee examining the Civil Nuclear Liability Bill heard testimonies from journalists, civil society groups, thinktanks, public bodies and government departments.

The role of the media and channelising the potential of the internet are other key approaches that need to be explored. Other examples and channels of engagement with the legislative process are illustrated in the PRS Primer on Engaging with Policymakers