The Government is contemplating to allow Foreign Direct Investment upto 51% in the multibrand retail sector. On July 2010 Department of Industrial Policy and Promotion, Ministry of Commerce had circulated discussion paper on allowing FDI in multibrand retail sector and increase the cap on the single brand retailing from the present 51% to 100%. The cabinet decision taken this month has resulted in widespread protests by small retailer with some of them shutting down there shops.
Retailing in India is divided into 2 segments-organised and unorganised. The unorganised segment comprises of 97% of the total retail segment and is the second largest source of employment in the country. The protesters feel that these people will lose their employment if the FDI in retail segment were to be allowed. The retailers will also acquire oligopolistic power and have huge influence over the pricing of goods supplied to the ultimate consumers. This will increase inflation rates. Also the retailers will acquire unprecedented monopolistic powers in buying goods. This is because the suppliers of the goods will be large and the buyers will be few as they would have displaced small retailers.
The organised retail sector in India is also in the early stages of development. They are not equipped to handle competition from the large foreign retailer. These issues were highlighted by a report on “FDI in retail sector” in the year 2009 by the parliamentary committee.
If still the Government insists on allowing FDI it should mandate the foreign retailers to invest in back-end infrastructure and logistics as it has rightly done. Allowing investment in retail will encourage the foreign companies to invest in cold storages etc. Also it should require the foreign company to buy certain percentage of goods from SMEs in India and employ poor people in the sector.
Experience of countries like China and Thailand shows FDI can be a boon by leading to increase in GDP. We can experiment with the policy by allowing FDI in a phased and calculated manner by monitoring the advantages and disadvantages.