In the winter session of Parliament, the FDI in retail issue remained 
the most debated, and resulted in adjournments. Indian politicians remained divided over whether the country would benefit, or lose 
in the long run. The analysis


By Sayantan Chakravarty


Foreign Direct Investment (FDI) has been allowed in several sectors in the last decade of liberalization. While on the one hand it has created many jobs in the service and manufacturing sectors, on the other it has allowed multinational companies to gain important footholds within the Indian economy post-independence. A nation that 300 years ago made the fatal mistake of shaking hands with the East India Company and playing good hosts knows only too well the impact of allowing foreign business forces to make inroads into India. And therefore right through two decades of liberalization, India has had to adopt a cautious approach and go slow while “opening up” its economy. While as a nation India wants to boost employment opportunities, modernize and also ensure a steady inflow of foreign funds, it has to do so with a fair degree of calculated risk and after great debate each time it allows foreign participation in growth.

Prime Minister Manmohan Singh who has been at the forefront of the great economic liberalization programme is credited for putting the Indian economy on the fast-track to growth. Clearly with liberalization there have been gains, and much modernization. Gone are the days when the common man would have to wait for years to get a telephone or a cooking gas connection, or even sometimes two-wheelers. World class infrastructure for shopping, entertainment and amusement are coming up even in two and three-tier towns in India. The quality of housing and roadways has gone up. Airports have been modernized. Even as India struggles to get swathes of population out of poverty, the growth is visible and undeniable.

A great deal is because India has allowed collaboration with foreign partners. The efficiency quotient has gone up. And even though foreign manufacturers have flooded the Indian markets with consumer durables, it is the common man that has benefited the most. There has been no single East India Company that has been allowed to sink its teeth deeply in the marketplace and take away the lion’s share of the returns, on the contrary there are many foreign players that are competing for a slice of the ever-expanding middle class market. And they are competing under well-set guidelines. The liberalized economy has also allowed Indian companies to step up a notch or two when it comes to quality performance, and has pushed them to compete with their foreign counterparts without getting the benefits of a closed economy and protected regimes. Overall, the consumer has begun to get a good deal. And that is a good sign for India.

The 51 per cent FDI in retail debate, therefore, was not so much about allowing the one big East India Company kind of group with imperialistic designs to enter the Indian marketplace but more to do with the sentiments of the common trader, the one who fiercely values his independence, and chooses to earn his livelihood by opening shop early and closing shop late. It is this class of trader that has lobbied with the political leadership, especially the Opposition, to make its point clear—the mass-selling multinationals in retail would slash prices to an extent that these small shop owners would be forced to shut down their businesses. Not just early, but completely. And millions would be left with no forms of income, and would be forced to find jobs with these very retail chains that the Government is planning to allow in India. 

The argument cuts both ways. If the Indian consumer is to be the end beneficiary, then naturally lower prices for day-to-day items would be welcome, even if they comes at a Walmart, Carrefour or JCPenny store. But there’s a larger question in the offing, something that forced the Government to put the decision in abeyance, after of course repeated adjournments in Parliament, and walkouts by the Opposition. 

The larger question is about how far we can push liberalization. While it is okay to create jobs, and, thereby, generate wealth for the economy, the price of job creation has to be taken into consideration. Is it okay to protect the smaller shops, the mom and pop stores, even if they cannot sell at Walmart prices? Millions of patriotic Indians, and those especially who represent the trading classes, would give an outright ‘Yes’ to that question. The vegetable vendor pushing his cart into a residential colony has in many ways been symbolic of India’s ability to allow the small businesses to exist alongside the multinationals. If everything is now going to be available at a supermarket or a cash-and-carry store, then this entrepreneurial class will be hit very badly. While it is okay to create jobs at automobile plants (individual enterprises can hardly afford to produce automobiles), the same is not the case with retail. It is this inherent pride in India’s entrepreneurial drive and ageless tradition that has hit at the root of the Government’s FDI policy. It hurts the small businesses across the nation, and that has led to the outcry from all quarters.

Speaking at the Hindustan Times Leadership Summit, BJP leader L.K. Advani asked why the Government was “so slavishly” looking at foreign investment in a sector like retail. He said the Government was hiding behind FDI in retail to provide answers to problems like unemployment that it had created. He said that it would not do to “blindly imitate” the West’s model of development, and also capitulate to the powerhouses of retail which were looking to get a foothold in India, giving the size of India’s market. “The Government has not been able to allay the fears of millions of shopkeepers and SMEs in the country,” the veteran leader said. 

Mukherjee conveyed to Banerjee that the subject was on hold A Retail Supermarket

FDI has the potential to create nearly a million jobs in the country straightaway say some experts. But will those million jobs include ones that would come from loss of livelihoods as well?

“Retail industry has been waiting for FDI clearance from the Government for a long time. The decision to raise FDI limits will act as a life saving drug,” says Sunil Goel of Global Hunt. “A lot of organized players will come in. There will also be jobs in associated sectors like sourcing and logistics,” says Ashok Reddy of Team Lease Services.

Justifying why it forced Parliament to be adjourned over the issue for a week, the BJP raised its anti-retail pitch in the Media. “We are not against the concept of FDI. But we don’t want it in retail. Our adjournment motion on the FDI issue is non-negotiable,” said Leader of Opposition in Lok Sabha Sushma Swaraj. 

The Mamata Factor
What crucially broke the will of the Government after the PM had categorically said that “FDI in retail was there to stay” was the Mamata Banerji factor. The West Bengal Chief Minister had told Finance Minister Pranab Mukherjee that her party—Trinamool Congress—would neither topple the Government on the issue, nor support the Government if it came down to voting in Parliament. She later announced that Mukherjee had told her that the cabinet decision on FDI in retail had been suspended until a consensus was negotiated.

The Way Forward
The services sector itself has accounted for about 21 per cent of the total FDI flow into India since the year 2000, which amounts to a staggering USD 123,706 million. Naturally, this sector is creating the maximum employment, and is responsible for India’s retail boom. While moving forward to expand the economy and push growth, the Government can ill-afford to put a complete full stop to the FDI in retail issue. What it can, of course, ensure is that 51 per cent control is reversed in favour of an Indian shareholder, and that can allay fears of the public at large, and even bring down temperatures in the Opposition camp. In any case, the decision cannot be put away indefinitely.


In the statement, Dr Ashok Ganguly, member of Rajya Sabha and Dr Deepak Parekh, chairman of Housing Development Finance Corporation (HDFC) state that the move to introduce FDI policy is not a new one. In fact, the “idea has been toyed for over 14 years” and that “detailed discussions with various stakeholders have been held, experts consulted and studies commissioned based on international experiences of organised retailing.”

They state that the "protests on FDI in retail are misconceived and unfortunate, but hope to salvage this situation should not be lost." The statement also states that the modernisation of retail trade is an essential part of India’s growth story. Ganguly and Parekh have cited examples of experiences of countries such as China, Indonesia and several others and states that modern retail trade and traditional "traders can, and do, prosper side by side, raising employment along the supply chain, improving farm incomes, reducing spoilage and delivering affordable products to consumers."

They state that the opposition of investment in modern retail for "the sake of it is only defending vested interests to the detriment of the vast majority. The duo urges the farmers, the consumers and the common people to raise their voices against "this false drama of apprehension against investment and modernising trade in agriculture and consumer goods. They state that the false alarm of FDI is continuing to be used after so many years, as a bogey in modern times against foreigners and foreign investment and feel that it is "completely deluded to argue that kirana shops will be wiped out with the onslaught of FDI in retail."

Finally, the statement states that it is important to articulate the economics of FDI in retail and believes that is "illusory to believe that the market will be flooded with FDI. The statement goes on to explain the workings of a retail business mechanism and states that "retailing is not an easy business and that the margins are thin, large parcels of real estate are not easily available and the supply chain logistics ranging from warehousing, cold storage to transportation pose a major challenge." The statement goes on to say that "the central government’s role in retail FDI is minimal and that greater onus lies with the state governments as a maze of laws ranging from Shops and Establishments Act to the APMC Act, amongst several others falls within the state’s domain." It states that "progressive states that wish to attract FDI in retail will encourage investments and vice versa. Either way, the fruits of organised retailing will not happen overnight, but will take several years."

In conclusion, the statement urges the "saner sections of Corporate India to come out and strongly support progressive measures and reforms with the same spirit and gusto with which we take the liberties to criticise policies or issues we do not appreciate."

December 2011

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