Intellectual Thoughts by Sanjay Panda: FDI in Indian retail

FDI in Indian retail

Decision to allow 51 per cent FDI in multi-brand retail and 100 per cent in single-brand retail should easily count as one of the boldest economic reform measures initiated by the government. At this moment all the poltical parties are opposing the idea in the pretext of that this move would destroy domestic small retail businesses and result in more job losses. They think fears of wiping out small retail shops and kirana ( mom and pop)stores.  But comfort should come from the many conditions that have been attached to the entry of foreign capital into the sector. Retail multinational, keen on entering India with a 51 per cent equity, will be required to procure at least a third of their raw materials from small Indian companies, allocate a minimum of 50 per cent of their investments to create backend infrastructure and operate only in towns or cities with population of more than one million. These are tough conditions and should be able to address fears of job losses with the advent of big retail multinationals.

On the positive side, the entry of big retail should result in a marked improvement in the efficiency of the retail chain. Large multinational retail firms will bring not only their capital but also more advanced technologies and processes that will bring down transaction costs and improve the retail delivery system. It is also expected that the presence of big retail chains and competition will have an impact on inflation. 

The share of organised retail in the total retail business in the country, estimated at around Rs 25 lakh crore, is still very low, at only seven per cent. China’s share of only the top 100 retail groups in its total retail business is over 11 per cent. Clearly, India has much to catch up on, and the decision to allow FDI in the retail sector should help start the process.


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