Arguments regarding FDI in retail

Vishnu - December 4, 2012

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]

Parliament

'Jack of all trades: How can MPs fulfil all their roles?'

Anil - October 25, 2010

At an event organised by the Hansard Society, a UK based political research and education charity, MPs spoke about what their role entails and the challenges the face in fulfilling their role. It is striking to note the similarity between what our Parliamentarians have to share about the challenges they face in their roles as representative of the people and what the UK MPs have shared.

Management of their diary i.e. Time Management and prioritizing issues are important to the MP being able to do justice to his various roles
The MPs stated that the constituency expects action from them on issues which fall within the purview of the local Government and should have been taken up with the councillor. These could be issues related to public works, schools and the like.
Quite often the local councillor is unknown to the population and since the MP is easily recognizable, local issues are taken up with him. The MP is obliged to take up the issue because he cannot be seen to turn anyone away.
People assume that if you are not seen on the streets you aren't doing your job. Therefore constituency visits are deemed important and end up taking quite a bit of time, which could have been otherwise devoted to legislative work.
MPs with a thin majority tend to focus more on local issues for fear of not being able to retain their seat. They tend to try that much harder to address local issues, even with the knowledge that it is not their primary responsibility.
Some MPs felt that the committee work should be of foremost priority instead of just an additional responsibility for the MP, as it is at the committee level that all aspects of the legislation can be examined and worked on in detail.
MPs should be encouraged to specialize in subjects so that they develop their knowledge in there area of interest.

In general, there are three views the MP has to balance: The Party's, The Constituency's and his or her Personal views. For example the debate on Wind Farms for renewable energy which spoil the landscape, or immigration. These are subjects where the three views may be vary greatly from each other and the MP has to balance each of these. Ultimately, loyalty to party is a must, since the MP won on the party’s ticket, so the MP owes his/her allegiance to the Party and should endorse the Party’s views.

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Arguments regarding FDI in retail

'Jack of all trades: How can MPs fulfil all their roles?'

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