How FDI-in-Retail can Work!

New Commerce and Industry Minister Miss Nirmala Sitharaman has started on the wrong foot. She stated that no FDI in multi-brand -retail will be allowed. However she did not altogether slam the door for the future. She said: “At this stage the party position is very clear. We have explained about FDI in multi-brand-retail. It is probably not best to open up now because medium and small sized traders have not been adequately empowered.”

Hopefully the next stage when FDI in multi-brand-retail can be allowed will come sooner rather than later. In fact it can come with immediate effect provided the government does some out-of-the-box thinking. By laying down preconditions for big foreign retailers the government could not only protect small sized shops but actually empower and promote them.

If the government were to ban foreign investment in multi-brand-retail it would equally have to disallow domestic firms from doing multi-brand-retail business. How would Indian firms, such as Reliance, view such a ban? The World Trade Organization treaty compels its members to allow foreign companies the same rights granted to domestic firms. In other words, if the government were to disallow FDI in retail an equal ban would apply to domestic and foreign retail giants. Has the new Commerce Minister considered this?

Prime Minister Narendra Modi had indicated earlier that Indian traders should think globally. He hinted that the policy regarding FDI in retail could be debated. The time has come to bite the bullet. FDI in retail will not only inspire confidence among foreign investors, not only will it benefit consumers, but if implemented with a novel approach it would greatly benefit even small traders and farmers.

The shopping culture in India is not compatible with the typical Walmart model followed worldwide. Unlike in the west, shoppers in India do not generally do weekly shopping in cars by driving out to a big mall or store away from the congested city centres. Housewives or domestic helps nip around the corner almost daily to shop at the corner store. And there are few Indian cities that offer space for constructing big stores like Walmart in the congested city centres. What big stores, whether domestic or foreign, can do is to introduce a franchise system allowing small traders to buy all brands at a wholesale price for marketing through corner stores in every locality. The government can in fact compel all big stores to reserve a percentage of their products for wholesale marketing through corner shops. That would also allow quality and price control of the goods provided by them to small shops. This would benefit both big stores and small shops.

In principle this experiment has been successfully implemented by Mr. Kishore Biyani, of ‘Pantaloons Retail’ in West Bengal. He successfully introduced the franchising system to rope in corner shops to sell his products. Why cannot the same system succeed for marketing all multi-brand products in the retail business? Allowing FDI in retail will inspire confidence among foreign firms and create a healthy investment climate. It will help farmers to sell products at favourable price to big stores having capacities for storage and transport. It will boost sales of small traders and corner shops. And it will help consumers get more choice at controlled price. Miss Sitharaman therefore would be well advised to abjure haste and consider options for amending policy regarding FDI in retail that might suit Indian conditions.



More by :  Dr. Rajinder Puri

Top | Analysis

Views: 3480      Comments: 2

Comment good suggestions ...

Rati Hegde
05-Jun-2014 08:08 AM

Comment Yes. some kind of regulatory mechanism on FDI in retail like the one suggested above will work. Of course small traders and farmers have to be protected.

05-Jun-2014 07:24 AM

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