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Why FDI in Retail is a good idea…

29 November 2011 3,744 views 166 Comments

Courtesy my FTI colleagues Vijay Mohan (idea and conceptualisation) and Aaryan (artwork), here is why FDI in Retail is a good idea…
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FDI in Retail
View more presentations from B Shantanu

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Comments, thoughts welcome as always.

Somewhat Related Posts: Profit is Charity – guest post by Dipinder SekhonFTI comes of age.. and Its all about Freedoms..

166 Comments »

  • 1. B Shantanu (author) said:

    Excerpts from When FDI met retail by Rajeev Mantri and Harsh Gupta:
    …Modern retail, with its emphasis on low prices, may result in the loss of some jobs – or more realistically, a slower growth in the number of jobs in the retail sector. This is a corollary to the fact that more capital and better management will improve per-employee productivity.
    …Studies by the Indian Council for Research on International Economic Relations (ICRIER) have found conclusively that the entry of organized retail did not displace unorganized players – the rate of closure on account of competition from organized retail was at 1.7 % per annum.
    If organized retail as a whole is not the villain it is being painted to be, then how does it matter whether it entails domestic or foreign investment?

    Moreover, since a large number of people are employed directly and indirectly in the unorganized retail trade, the challenge for the government is to ensure that the short-term upheaval that will be caused by such a reform doesn’t lead to a long-term dislocation. This can only be addressed by implementing further reforms that create more productive jobs. It is impossible for India’s burgeoning youth to be productively employed in PSUs and schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme. There must be a holistic strategy to execute economic reforms. Long-delayed enactment of taxation, commodity pricing and agriculture procurement reforms are already major constraints on realizing the positive economic impact of FDI in retail.

  • 2. B Shantanu (author) said:

    Excerpt from Why India Should Sop Fearing Wal-Mart:
    …Whether it does or not, the one system that is not working for Indian farmers is the current one. You can see it on display in the Azadpur mandi on the edge of New Delhi. This is a huge wholesale fruit-and-vegetable market supported by the Indian government’s “mandi tax.” By law, farmers are required to sell their produce only to approved mandis. (Walmart has to pay the mandi tax even when farmers sell to them.) They travel for hours to get here, and once they do, they have to take whatever price the wholesale buyer is willing to give. The buyers don’t inspect the produce and offer better prices for better quality; they just sell the 100-kg sacks of vegetables to another set of middlemen, who break it into smaller lots that eventually find their way to vegetable vendors and the capital’s thousands of small retailers.
    By the time it reaches the consumer, that produce will have been marked up by three to four times or more, but nearly all of that goes to the middlemen, not the farmer. Meanwhile, about 30% of the produce also spoils along the way for lack of cold storage, contributing to India’s soaring food inflation.

    India’s traders and kirana shop owners have had more than six decades of protection from foreign competition, during which they have done little to improve the food supply for farmers on one end or consumers on the other. It’s not surprising that they and their political allies object to anything that might change that.

  • 3. Nanda said:

    Highly exaggerated presentation and quite misleading. This presentation saying that a Rs.40 goods would be available for Rs.20 is baseless. We need to understand the difference between Modern Retailing and FDI in modern retail. Modern Retailing is not new in India, even tier two and three cities have Reliances, Mores and EasyDays. They have displaced many local retailers in the neighbourhood, not because of price, but because of brand and fashion. My rice costs Rs.40/kg at the local shop at the end of the street and it varies between rs.38-42 on a daily basis at the modern retailer few streets away. My family wants to go to Easyday thinking they will get rice for Rs.38, but the occational Rs.2 or 3 savings is not sufficient to justify cost savings for an ordinary man like me who can only eat few kgs of rice per month. Talk about vegetables, 1 kg potato costs same Rs.23 in Reliance or Easyday as outside, may be a Re less. Same for fruits. Please don’t try to mislead people by showing attractive 50% discounts.
    You talk about rotting vegetables, what percentage of retailer revenue you think is from vegetables you think? Do people go to Easy Day to buy vegetables? no, they go to by groceries and provisions. These products have longer shelf time and don’t rot like you are informed. Ofcourse there are some cases of rotting pulses, but thats too miniscule to take as justification. When you buy monthly groceries for Rs.2000 from easyday, you don’t have even Rs.100s worth vegetables, what about remaining 1900.
    Coming to FDI in retail, this is a different topic, please do not deviate from this by trying to justify modern retail. FDI in retail means, huge profits are eaten up by foreigners at the expense of our local retailers. I am not being a hypocrite when I say this, I know that our companies make profit from foreign operations. but the difference is, we have an opportunity here to improve our processes, change the way we do retail, implement regulations to control the middle men, learn the best practices from foreign companies etc. This is what our retailers and govt should try to do, than asking US and Europe to take over our retail market. Ofcourse this is an attractive topic for educated and foreign grown people, but this is a technique of current govt to camouflage their incompetencies in resource management. If you can’t handle it then let others handle it, don’t give it away to foreigners. UK has learnt a hard lesson by letting Tesco take over their retail market, but they are at a point of no return. We still have a choice, lets make it wise.

  • 4. Nanda said:

    Btw, rotting pulses, wheat and rice is not because of middle men, its because of the govt and its representatives who are more interested in personal businesses than in public service. When these looters allow FDI in retail, they just pocket part of the profit and let the operators swallow the remaining. At the end, people are made fools, they wouldn’t even know that they are getting bad deals. I saw a JCPenny ad saying winter jacket for $60 only..bs..only few people realize it was always in that range. Come to India, I will get same quality shirt for Rs.350 in a local shop than buying it for $1200 in shoppers stop or westside. I know for sure that the same manufacturer is supplying same quality to both these people with different brand names. Even if I get it for Rs.340 in big retail, why should I screw up the life of a family for saving Rs.10? I will let this one local person take Rs.20 profit than let a big CEO take Rs.10 profit from crores of people.

  • 5. Khandu Patel said:

    Opening up of the retail sector to multi-nationals is not the nirvana it is claimed to be. All of India’s incompetence and failures will be fully exposed to the ruthless pursuit of profit by them. Domestic producers receive prices for their produce that have bankrupted them in the UK as they cannot compete with the likes of China on price. The British worker a consequence has been forced to accept a reduced standard of living. The tale is the same for America and other advanced Western countries where national champions have not protected them. India should first improve its capacity to take on the competition before opening the doors. There is no case for opening the floodgates for cheap imports from China: they have flouted everything in the WTO rule book. They are only cheap because they have manipulated the markets to everyone else’s detriment. I am sorry to disappint the free trade purists, things are bad enough for Indian industry without a wholesale opening of the floodgates to China and Chinese capital. The West is relying on China for their capital needs, and Chinese influence over their policy and management is already evident.

  • 6. B Shantanu (author) said:

    Nanda, Khandu: Thanks for the comments and thoughts…Good to see a healthy discussion going..
    I am copy-pasting comments from the Fb page below..and will try and respond to the points later today/tomorrow (will also request Vijay and Aaryan to pitch in). Below, comments from the FBpage:

    **
    Shyamanjun Reddy should have added more jobs somewhere in the slide and the retail sector becomes more organized this way.

    Gaurav Upadhyay Sir,this is just one aspect of the debate.We also need to analyse whether more jobs will be created or lost?Secondly,the cultural impact of WalMart,etc opening shops in India?

    Panuganti Chandra Mouly Banks r collecting the money throughSB accounts from the villages and dumping the Same to current accounts in the cities to the people like Vijay malya&RamalingaRaju.
    Ultimate loosers will be poorpeople and the nation

    Shantanu Bhagwat ‎@Shyamanjun: Good point. Thanks
    @Gaurav: It is v likely that more jobs will be created (longer term) rather than lost. The overall benefit is likely to be positive in the longer term (provided this move is coupled with reforms in commodity pricing, agri procurement etc as well).
    @Panuganti: What is the link with FDI in retail? This is a totally different issue..

    Pratyusha Yarlagadda Please consider all factors before jumping to conclusions:
    a) More Jobs: Firstly, Walmart technology might need more specialists than to employ. This is not a criteria right now. think about the vast population who are and can be self employed without any technology right now. The jobs created would only shrink with time as more people will be replaced once the establishment is settled.
    b) Direct access to farmers and quality to end users:
    Why can this not be accomplished internally rather than seeking to foreign company at the risk of exploitation.
    c) In a long term there are more disadvantages to this model, which has screwed up nations worldwide.
    Although, we can talk about more and more India specific dimensions,
    I would conclude saying this:
    Dont forget that this is all due to an enormous opportunity in the consumer sector in the new India. If at all our concern is development, let it be driven and implemented by Indigenous companies and people, so the intentions remain intact.
    Else be warned, this could just prove another form of exploitation, the affects of which can be seen only in a little longer time and by then its too late to make amendments.

    Pratyusha Yarlagadda You can refer to this as well.
    http://www.indiafdiwatch.org/fileadmin/India_site/10-FDI-Retail-more-bad.pdf

    AAryan Rao ‎@ Pratyusha Y: Can you provide which nations got screwed-up.

    Prashant Serai Isnt retail of vegetables and fruits only a very small component of retail?
    How can we say whether the retailers coming through the FDI route even touch the vegetables and fruits segment?
    And that they will grant fair prices to farmers, won’t they have higher bargaining power?
    The reforms in commodity pricing, agro procurement, is more of a real solution to the issue cited, it seems. Is it that implementing such reforms would need high proliferation of organized retail ?
    Besides, I just cant resist a conspiracy angle, given the timing of this, and the mind boggling 14% fall of the rupee..
    @Pratyusha Nice analysis in that document, though I didnt read everything. Thanks for sharing.

    AAryan Rao I have explained some specifics over here. http://apnabhaarat.wordpress.com/2011/11/25/is-foreign-invetment-in-india-good-or-bad/#comment-89 There are good concerns came up in the discussion too.

    Panuganti Chandra Mouly Instead,the Govt.needs to encourage Ryotu Bazars and local commodities.
    **

  • 7. B Shantanu (author) said:

    More from Sanjeev’s fb post:
    **
    Kapileswar R Bolisetti dislike..
    it says local retailer need to innovate.. thats such a ruthless statement..
    you ask the uneducated local retailer to innovate to compete with competitors from modern economy how ruthless it is..
    Either way its going to hurt the Indian society .. if its going to replace the local retailers I can assure the local retailer will certainly go bad if the options become limited crime will increase..
    For the elitist local retailer might be guys worth few lakhs or crores..
    But I come from a family where its every day bread.. I will end up helping my brother.. but his brothern.. they wont have anything to do .. They dont have any skills.. and last resort will be crime..
    For those of you have read freakonomics.. you probably understand how the world changes..

    Srikanth Reddy Garlapati You made such a assumption that , the retailer would pay 10 to farmer and sell it at 20 to customer.I doubt it.I think Corporation are not in the business of serving farmers and customers. And middlemen who are small business owners converted to low wage ‘employees’. Worst part is 51% of profits go out of country( I think this is Congress govt’s monetary policy of taking out money from the system to control inflation).
    **

  • 8. K P Ganesh said:

    Okay. First things first. There is no real intention for present day UPA to get FDI in. They have managed to use this issue to find sometime and place to wriggle out of the serious of scams and corruption issues they have been facing since they came to power in 2009. Secondly, though speculated this wouldn’t be off target – Kickbacks to both parties from these big retailers. Thirdly, the reason for FDI to come up now is purely to try and find means to bridge the burgeoning current A/c deficit and the excess of Forex outflows, which has taken the rupee all the way up to 52.30 to a dollar. BTW, FDI a source of solace to fight inflation is complete hogwash. India’s inflation trouble is purely because of it’s oil bill (nearly 70% of our import bill). Fifth, these statistics of FDI creating jobs as is being advertised is even beyond hypothesis. An IT sector that contributes nearly 35% of GDP may have come close to those job figures, but retail, especially in a global recessionary environment, forget it. What is worse is the kind of herd mentality our business folks will indulge in, and the first sector that will benefit from this is real estate, where everything in opaque and prices are yet to see any kind of reasonable corrections. And this herd mentality will spill over to our education system as well, which like it has done for the sake of ITES/BPO sectors, created a system to churn out sophisticated slaves. What happened to Dr. Sarvapalli Radhakrishnan’s definition of education which says any kind of education is useless if the end result doesn’t enhance once creativity. Indians need to come out of this mentality that as Indians we have to rely on foreigners to come and change things and that we as such can’t do it (a good excuse to be lazy, I would say). For me, the only motive for these foreign companies is leveraging their business, as India is just one market in their basket of global markets. For them India is a perpetual lost cost labor market, where a person can be employed at Rs.4000/-pm while get business worth crores. And I doubt these retailers will ever allow labor unions. Recent spate between management and unions at Maruti should serve as lessons with regard to dealing with labor issues. As far as eliminating middle men is concerned, that is never going to happen. They will innovate and evolve. For none of these so called big budget business tickets goes past a minister who has huge clout in areas where these retailers may want to set up their shop. And I wouldn’t be surprised if some relative of these ministers finds a way to be partner for these retail giants, who in turn will have his own set of middlemen, henchmen to monopolize things.

    What India needs is complete economic reforms, beginning from agriculture, not some stop gap pseudo-liberalization activity that benefits the creamy few, as usual, at the cost of billions.

  • 9. संदीप नारायण शेळके said:

    Shantanuji,

    The presentation is certainly misleading.
    1st: Prices aren’t decided the way shown.

    2nd: What about the small enterprises which will be hit badly?

    3rd: Kautilya says “All are your citizens and their well-being is your responsibility”. Aren’t the retailers and traders too Bharatiy? Isn’t their pain and grief is answerable too?

    4th: have they thought of probable ecological and bio-diversity problems in rural area considered? Change in the eating habits? Cultural impact? Or mindless profit seeking attitude only way?

    5th: Big Retailers have the tendency to get into contract farming for their needs. This will push farmers to produce what they demand. Certainly if they will ask for particular sort of produce in large number to make more profits, that means the more area will be cultivated for that particular crop. Now considering this scenario if food grain production goes down then wouldn’t there be a threat our food security? And then the same farmer will be buying the grains from the market, which he may be able to afford. But all are not farmers, many of them are labors too. Would they be able to procure the grains from open market with soaring prices. E.g. this year Jawar prices were Rs.35/Kg, which last year was Rs.18/Kg. Jawar is main food in Maharashtra rural area. PDS does not give Jawar on ration card. Jawar is highly nutritious and healthy food with digestion friendly qualities.

    We have to remember that more than 30million got hungry today even after huge grains production. We have to remember that PDS system is in shambles. Finally foreigner will be investing here only for money and not to solve our problems.

    I think at least food is not a commodity which we can leave upto the market to decide prices. If grain production is high prices are bellow production cost and if production is high, prices are out of reach.

    I would say if commodity pricing and agricultural procurement are main issues then why do we need an external trigger to resolve these issues?

    FDI in automobile, telecom, banking, services is good since these sectors are liberalized long back. But agriculture is still in the clutches of govt. They have very strong grip around it through subsidies, freebies, tight pricing policies etc.

    For IT, real estate, telecom, automobile government provided infrastructure, finance (FDI, FII, cheap loans). Various insurances too are available. But take example of agriculture; lack of good connectivity, store houses, processing units, worst condition market yards, lack electricity, no irrigation facilities.

    Its all about asking people what they want and imposing what you have. FDI in retail is certainly not a solution to the problems of farmers. If it is please give data about what percent of farmers will be benefited in long term, considering food security issue, ecological/bi-diversity issue.

    Jai Bharat!

  • 10. sudhav said:

    FDI would not be a good idea at all. We had similar debate in the UK in the 70′s and 80′s, when the national giant superstores Tesco et al were putting high street retailers out of business, which they have done very successfully.
    Make no mistake about it,Walmart et al will suffocate and kill the local retailer.
    The argument that a better supply chain needs to be created from farmer to the outlet is valid. What is stopping the indegenous population, and especailly those trained abroad, doing that themselves. The retailers need to work on the model of the likes of Haldirams of India, and in fact bring Haldiram to London and New York. i wonder who will support Haldirams set up in London?

  • 11. B Shantanu said:

    Putting this here for the record…
    Excerpts from FDI in Retail: Examining Some Issues in Agricultural Products by Girish LN:

    Actually such arguments on both sides are generic in nature. By themselves they are not wrong and things could very well pan out that way (i.e. both ways). However for this to happen there are many prerequisites. Let us briefly examine some parts of this reality.

    First let us remember that we are concerned with food produce. Thus cotton and jute may be agricultural produce but will not fall within the supply chain of a Retail Chain.
    Second, for an MNC to make any kind of impact on the source end, it will need to account for a significant share of the market.
    It is of course difficult to determine this share exactly. Suffice to say that – a) this will be commodity specific and b) as long as the farmer has a viable alternative to sell to, there will be no monopolistic effect.

    Let us examine some of the hurdles a player MNC (or for that matter a local player) needs to cross before it can reach this level:

    1. Policy Environment: Any business in the country – local or MNC will need to follow local law, rules and regulations. Thus permission for FDI cannot supersede other provisions in the country. The MNC will need to follow import regulations, pay import duty, and fulfil all statutory requirements. To list just a few:
    a. Import duties – for food items are quite high. For instance for cheese, butter and ghee it is 40% Honey attracts 60% duty.
    b. APMC rules – restrict the ability of any player to deal directly with a farmer.
    c. Storage may be subject to Essential Commodities Act.
    d. Government control on sales (releases into market) as in Sugar
    ..
    2. Shopper Habits: The mass retail format requires purchasing behaviour which may not fit with existing Shopper Habit. For instance in (most of?) Urban India, milk is delivered at the doorstep early in the morning. How many of us will be willing to break this habit and a) go to a supermarket after 9 in the morning, or b) stock up for the following day(s)?

    3. Uniqueness of Food Basket: To use an example, India is the world’s largest producer of pulses accounting for 27-28 % of world production. But it is also the world’s largest Consumer, and the largest importer! Indeed Shortfalls are imported, but the uniqueness and variety consumed by Indians means there are simply not that many sources. For example Canada produces chana but not tur. Burma is a major supplier. An international retailer seeking to dominate pulses economy cannot simply plug in to their sourcing system and undercut Indian farmers. It will need to develop new sourcing infrastructure and may end up doing most of it from within India.
    4. Competitiveness of local production: In many agricultural products India is a significant as well as competitive producer. India is the no 1 producer of Pulses and Milk, no 2 in Wheat, Rice, Groundnuts, Potatoes, Onion and Sugarcane. It is also the third largest producer of Eggs (Source: Ministry of Agriculture). In many of these it is also competitive. Other than edible oils where India is quite dependent on imported palm oil, in no major item of daily consumption India can be easily undercut with imports. A retailer seeking to bypass the Indian farmer will need to develop and use sources that can ‘beat’ him in price!

    5. Cost of current supply chain: Many commentators have used the argument of multiple layers in the current system increasing total cost of the channel. This is certainly true for some product categories but is not universal. Using two of the examples covered earlier – 1) Processed milk is delivered by the manufacturer to kiosks and street-corner redistribution centres in a single operation. From there it is delivered to homes. Currently we in Chennai pay Re. 1.00 per litre for this last mile service or a mark-up of 4.3%! In the case of unprocessed milk, there is often no middleman! 2) Margin between the farm gate price for broilers and the price paid by the consumer is estimated at about 20 to 25 percent. To reach the position of controlling the supply chain, a retailer needs to achieve lower cost or add value through other means – commodity-wise, as we saw that the dynamics in each commodity can be different

    As long as the buying organisation is unable to cross these hurdles, it will be difficult for it to make a monopolistic impact on the supplying system. Just as it may be difficult for them to replace current systems easily, they may well end up playing too marginal a role to have an impact on the wellbeing of the farmer! Unless of course there are significant, lasting systemic changes!

    Thanks for continuing the discussion…More soon

  • 12. Malavika said:

    I think FDI in retail is a terrible idea. Prof Vaidyanathan wrote:

    “he argument is that the MNCs bring “funds” and “efficiency” .An MNC does not normally bring funds from outside sources as it can access them in our market by showing “comfort letters” from their parent companies. Many financial institutions, both government and private, are ready to lend to them below the prime rate as they are “Global”. That the MNC will bring funds from abroad is largely a myth. Remember, Enron which was supposedly bringing Rs 10, 000 crore from outside. The final result is that Indian FIs are holding more than Rs 6,000 crore of worthless paper.”

    “Trade is conducted mostly [more than 80%] by partnership /proprietorship firms with active involvement from members of family and community. More than 125 lakh kirana stores provide a source of livelihood to 16 crore people. Retail trade has grown faster than the economy: it registered a compounded annual growth rate (CAGR) of 9.4% between 2004-05 and 2008-09 when the Indian economy grew at 8.66%.The retail trade comprises all kinds of people and formats — from street vendors to departmental stores of various types, shapes and characteristics. More than 80% of trade is accounted for by partnership and proprietorship forms — often called the “unorganized” sector.”

    If these retailers(Kirana Shops) close, what will be the livelihood of lakhs of people where there is no social safety net. Aren’t farmers suicides terrible enough? It is not just traders, our artisans will be impoverished by likes of IKEA.

  • 13. Sanjeev Sabhlok said:

    Shantanu

    I’d like to address the concerns raised when I find some time. In the meanwhile I’d like people to go through the slides here:
    http://sabhlokcity.com/2011/11/can-india-catch-up-can-australia-or-the-west-more-broadly-do-better-2/

    The key point to note is that growth is a function of productivity, which is a function of innovation, which is a function of the level of freedom (and competition). (see the slide on the growth model)

    Wealth of Nations (Adam Smith) is not created through mercantalism (sheltering the economy) but through competition.

    There is no doubt that many people will lose jobs in retail as the sector becomes more productive. However, as prices fall, consumers will become wealthier and buy OTHER things.

    These other areas will create MORE jobs.

    You never look at an economy in isolation, but as a well-integrated, well-oiled system.

    And as far as poverty is concerned, India DEFINITELY needs a negative income tax to eliminate poverty (e.g. see http://sabhlokcity.com/2011/12/indias-increasing-poverty-even-as-growth-takes-off/).

    The problem is that virtually no one in Indian policy circles understands BASIC economics.

    That defect needs rectification through MASSIVE increase in economics education across India.

  • 14. Ravindra said:

    Dear Shantanu,

    This time you got it wrong! We cannot let foreign companies take over the retail sector, while ignoring the security of the retail traders, if they wind up their businesses.

    Agreed that efficiency and a competitive price for customers is important, it doesn’t have to be met by way of opening the flood gates of retail economy to outside powers.

    As someone in this discussion suggested, we need more of Haldiram’s, rather than wallmarts.

    The first commentor Nanda has very intelligently articulated the case.

  • 15. B Shantanu (author) said:

    @Nanda: The numbers are simply indicative but I guess they should have been mentioned as such…
    Secondly the rise in organised retail is refelective of consumer trends – and is not just driven by price but also convenience and a belief in baseline quality of stuff sold.
    Third, the rotten vegetables etc may not lead to a significant revenue loss to the retailer but have you thought about the farmer? and think about farmer suicides…
    And finally re. your argument about “huge profits eaten up by foreigners at the expense of our local retailers”, what is the basis of this assertion? And why is profit so bad? and will they be the only ones making the money? what about the jobs that would be created? the infrastructure that will be set up? the better price that farmers will get? lower prices for consumers/ How can you overlook all of this?

    And fears of Europe taking over our retail market are highly exaggerated, don’t you think? Tata has just taken over Tetley brand of tea in UK. Kingfisher rescued a leading whisky manbufacturer a few years back..I am sure indigenous businesses like Tatas and Reliance have the frepower to take on the behemoths…

    As for UK learning a hard lesson because of Tesco, can you pl elaborate what exactly is the “lesson”?

    P.S. Pl don’t mix up paying a higher price at your local store with charity. It is not. Businesses exist to make money. They should do that. And consumers must have choice. Choice is good; Competition is good – It leads to efficiencies and increases in productivity. Why deny that?

    @Khandu, Re. “British worker a consequence has been forced to accept a reduced standard of living”, this is the perils of free trade and free markets. But can you really fight this by closing off your economy? The way out is training, developing skills and making industries more productive – not closing off entire sectors of the economy – which will in the end become so uncompetitive as to nullify any impact of development. And don’t forget that the well-off in India still do a lot of their “shopping” abroad – not in the US necessarily but also in Thailand, Singapore etc. Have you wondered why?

    I agree that we should not simply open the floodgates and some measures will be needed to ensure level playing fields and prevent dumping of goods – but those are details re. implementation not flaws in teh concept.

    @Kapileswar: Re. “you ask the uneducated local retailer to innovate to compete with competitors from modern economy how ruthless it is..”
    Please tell me is it not equally ruthless to expect students who have had no proper education to compete with foreign returned sons and daughters of the rich? Is it not equally ruthless to expect a lowly paid group of Engineers to compete with the IBMs of the world? And please don’t underestimate the busienss acumen of the uneducated local retailer. They don’t need out sympathy – but support. Support in terms of continued business if they are able to differentiate themselves against the Wal-Marts..Don’t you think?
    And your argument about increasing crime could be extended to banning all forms of machinery – since it takes away jobs that can otherwise be done by people (who are not unemployed). So the response should be increasing job opportunities for the millions who may be displaced – again, better training and re-building skills rather than having pity and giving them hand-outs.

    @Ganesh: You said it: “What India needs is complete economic reforms”…We can argue about where they need to begin but I agree that FDI as a stand-alone measure will probably do more harm than good – and unless it is coupled with a series of reforms in other sectors (and investments in education, training and infrastructure), it could lead to a massive social backlash.

    @Sandeep: You raise some very valid points, a few of which are covered above. Pl don’t misunderstand a picth for FDI as a move to throw the small retailers/traders to the wolves. As I mentioned, there is very likely to be significnat short-term upheaval and the government should plan measures to cope with the dislocation of jobs and incomes. But again, that is a point regards implementation not an argument against FDI per se.
    As for problems in rural areas and cultural impact, we already allow foreign programming in our media which has a far more lasting impact than any Wal-Mart can ever have, don’t you think? And the rural areas are likely to be benfitted the most in this scneario. Ask the farmers in Punjab who now supply potatoes to makers of potato chips. They welcome these buyers.
    We will certainly need to be cautious about this but the alternative – what we have today (including sky-high inflation) is not exactly rosy, is it?

    And you are right that this move will work best it it comes along with a package of measures specifially targetted at improving the situaion in agriculture (commodity pricing, procurement, rural infrastructure, supply chains, etc etc).
    Finally, it would be good to get data – as you ask. Am tryin to see if I can find some.

    @Sudha: There is no either-or. We can have FDI in Retail AND have the local retailers compete and improve their offerings – don’t you think so?
    P.S. I liked the bit about “Haldirams in London”!

    @Malvika: I think Prof Vaidyanathan’s second point (about what will happen to those whose incomes/jobs will go) is a valid point and needs to be addressed (as I mentioned above). But in my opinion, that cannot be a an argument for opposing FDI itself.
    I think we are (including me) mixing up two things here: (i) whether FDI in Retail is a good idea in itself and (ii) whether the government is prepared to meet the fall-out and the side effects of this move.
    I sense there may be some agreement on point (i) but it is point (ii) that most are worried about.

    @Sanjeev: Well Said; “You never look at an economy in isolation, but as a well-integrated, well-oiled system.

    @Ravindra: Re. “This time you got it wrong!“, one lives and learns!
    I believe I have covered your points in my observations above…but look forward to continuing this debate.

    All: Thanks for a thought-provoking discussion. Look forward to more thoughts…/Thanks

    P.S. Here is a link to a 2005 story on what happens sometimes when global retail gets it wrong: Japan Isn’t Buying The Wal-Mart Idea

  • 16. B Shantanu (author) said:

    Placing a few more links here to further the discussion:

    FDI in Multi- brand Retail Trading: MSE Sector Need Level Playing FieldBy V.N Prasad & Perumal Koshy (pdf file; MSE = Micro & Small Enterprises)
    and this excerpt from a post by Derek Scissors via Offstumped:

    Multinational retailers do not serve only local markets—they have a great deal of experience and success in sourcing goods from developing economies for their developed economy outlets. Wal-Mart in China is the classic example of this, which could not be more relevant for India.

    India is in the early stages of a demographic expansion that will be matched in history only by the one China is soon to complete. In creating productive jobs for the tens of millions of new entrants to the labor market, exports are indispensable.

    Majority control over their operations will completely change the incentives and scale at which foreign retailers will operate in India, making exports vastly more attractive. With this control, foreign retailers can potentially generate tens of billions in annual exports, thus directly boosting employment. If permitted, they will also drive the creation of commercially valuable infrastructure—roads, container terminals, and so on—that will benefit all exporters, indirectly boosting employment. This is the kind of infrastructure India desperately needs, not politically motivated government projects that contribute little or nothing when the construction work is done.

  • 17. Patriot said:

    All very interesting and robust comments, Shantanu, and all against FDI in retail.

    Not surprising, because the issue can be made very emotive by saying thousands of retailers will lose their livelihoods as GREEDY MNCs take away all our hard earned wealth, the return of the East India company, the Chinese will dominate our govt through our markets, etc.

    However, who has brought any data or real analysis to this debate? Only the original presenter, Vijay, and you, Shantanu, and Nanda with his rebuttal, and to a lesser extent, Ganesh. Everyone else is just either regurgitating what some politicos or media chaps have been saying or just lashing out based on raw emotions.

    Let me try to answer Nanda’s points first in this post, as logically as I can:

    First, I would like to know which industry in India has been dominated by foreign companies, after that industry has been opened up post 1992 or even earlier? Anybody? I know a couple of industries, but I would like to hear from the critics.

    Let me take a couple of examples, where the reverse is entirely true:

    Milk and milk products – Amul kicks the collective butts of Nestle, Kraft and Danone.

    Motorcycles – Bajaj and Hero are global scale manufacturers, even the Chinese could not compete in India.

    Trucks – Tata Motors dominates the markets not just in India, but parts of Africa and Asia, now expanding its LCV range into Europe

    Jeeps and Tractors – Mahindra dominates India, while expanding into the US and Europe. Where is John Deere in tractors? Ah a oh so distant third in India. How about the Pajeros and Land Rovers of the world?

    Restaurants – Have all the Udipi joints and other small restaurants closed down because of McDonald’s, KFC and Pizza Hut? Have any of them changed over? In fact, McDonalds had to introduce the first home delivery service in its history in India – we are like that only!

    The point I am trying to make is that competing in India is not easy, in fact, it is the reverse – it is very complex and very demanding – and, this is because we are a value-for-money society that will not easily pay for a brand or luxury.

    If you travel to the US or UK, companies out there are scared of our companies. Indian companies that go global are well respected as worthy and fierce adversaries. Let us not underestimate our strengths and be mindlessly afraid of the foreigners – we can show them a thing or two, if not more.

    Finally, the whole cost and systems structure of a new MNC firm and an Indian firm is so different that it typically takes a new MNC at least 3-4 years to “Indianise” their cost structure, and even then, many of them fail. Some succeed so well that we consider them Indian companies! (Hindustan Unilever comes to mind, but, of course, that is not a very good example – although, HUL is now exporting its best practices to other countries in Europe, as well as managerial talent)

    Then, Nanda takes us through the whole big box vs unorganised or small retail shops very well – it seems to me that people, in general, do not necessarily oppose big box retail, as that is a completely separate argument. The other thing that people may not realise is that big box retail has existed in India for many years, even before the advent of Big Bazaar or Spencers or Reliance – they were Bata, Akbarallys (in Mumbai), Apna Bazaar and Sahakari Bhandars. I have been shopping for groceries in Apna Bazaar since the early nineties.

    Nanda then chooses to pay extra to his local retailer than the big box owner – while that may be an admirable choice for him, why is that a choice that has to be forced on others? For others, the daily saving of Rs10 (Rs300 per month) may be a significant part of their monthly expense – should we also force them to suffer so as to protect the local grocer?

    And, what about the flip side of the story – without adequate competition (and local grocers were very good at driving out any new kirana or “moodikhana” shops from their catchment areas), the local grocer was free to sell foodgrains and pulses “loose” by weight (which he invariably cheated on, mixed chalkpowder in flour, grit in rice and wheat, other impurities in turmeric, chilly and jeera. How soon we forget how we used to curse the local “baniya”. Because of Big Bazaar, the local groceries were forced to switch to standard packs, instead of loose, adulteration has come down significantly and in general, retail foodgrain and pulses prices have tracked below inflation over the past 20 years (this is hard data). So, take off those rose tinted glasses please.

    And, some local grocers have commented at how big box retailers actually increase their profits – they buy the 2 for 1 or 3 for 2 offers on white labels from the big box retailers, and then sell them singly in their local areas, adding to their margins. Those who prefer the convenience of the local grocer and those who like Nanda who does not want to deal with faceless, big corporations are also happy – they are still getting the white labels at a price cheaper than other brands. So, a win-win here?

    And, then white labels that the big box retailers can stock helps the small and medium sized manufacturers – who other wise could not compete with the HULs, Britannia, P&G or Marico’s of this world. And, the consumer benefits from lower prices, but same or similar quality, as the Big Box puts its own credibility behind the white labels.

    And, finally, has anyone looked at the employment numbers of organised retail – it is now the second largest source of new NET employment in the country. Would you deny all these people their jobs, because your local grocer can not compete effectively?

    I have not touched FDI in retail in this post – because I wanted to clear the whole Big Box vs unorganised retail first. I have also not touched upon vegetables or fruits in this comment, as that is, as of now, a tiny portion of Big Retail for various reasons. (I will explain this in another post).

    I invite comments on this aspect of retail, before we move to FDI.

    Cheers

    Supratim

  • 18. Patriot said:

    Let us look at the performance of Big Box Retailers in India now – as to how they have fared and whether they have speculated or ruthlessly driven up real estate prices or some other “derogatory adjective here”:

    Big Bazaar: Profitable, with estimated net margins of 3-5%, national chain, has really been accepted by the masses. You see every type of consumer at Big Bazaar (which includes Food Bazaar) except the very high end customer, who may have sent their chauffeur instead! From the local grocer to your next door neighbour, I have found Big Bazaar to be a real melting pot.

    Spencers/Reliance: Some what like above, but do not have the same number of stores. Reliance is estimated to be loss making, while Spencers is marginally profitable

    Apna Bazaar/Sahakari Bhandar: Widespread across Maharashtra, do not know about other states. They are co-operatives, run by “unions” and supposed to be profitable. Can be cheaper than Big Bazaar at many times.

    Shoppers Stop/Life Style/Westside – Middle to high end non-grocery retailing, mainly apparel and related items. More profitable than Big Bazaar, est >8-10%

    Suvidha – Similar to Big Bazaar, would give home delivery as a refinement, and many satellite stores. Bankrupt and shut down

    Vishal Retail – Bankrupt and shut down

    So, what are the conclusions that one would derive from the above landscape? That Big Retail is rapacious? Makes Huge profits? Always succeeds?

    Cheers

  • 19. B Shantanu (author) said:

    Thanks Supratim…More food for thought below…

    ***
    Excerpts from Indian Government’s Claims About Corporate Retail and the Reality: Shankar Gopalakrishnan:
    …Commerce Minister Anand Sharma’s letter offers a good place to start. His claims can be summarised as follows:
    Corporate retail fueled by FDI will result in investment in cold chains and therefore in lower prices by “eliminating middlemen.”
    Corporate retail will not threaten small retailers, who find “innovative ways to coexist”, and will generate employment
    Corporate retail will benefit farmers and producers by ensuring a “remunerative price.”
    Corporate retailers will remain restricted to some areas and some sectors.
    There are already corporate retailers in India and there is therefore no problem in permitting FDI.

    Not one of these claims is justified by the available data.
    Lower Prices and Investment in Cold Chains
    In the sector that requires cold chain infrastructure most – fruits and vegetables – data from developing countries often shows that prices in supermarkets are generally higher than from existing retailers. Certainly, there is no data that shows consistently lower prices from corporate reatilers.

    Thus:
    In Thailand, they are estimated to be 10% higher (1).
    In Argentina, data showed consistently higher prices for fruits and vegetables in supermarkets (the difference being about 14% through the 1990′s), though this difference was falling (2).
    In 2000, in Mexican supermarkets, prices of lemons, tomatoes and oranges were significantly higher than in traditional markets, while in all other fruits and vegetables they were identical or slightly higher (3).
    In Vietnam, in 2002, it was found that prices in supermarkets across all categories were around 10% higher(4).
    The concentration of power in the hands of a few companies by no means leads to lower prices. In the US, supermarkets raised tomato prices by 46% between 1994 and 2004 while real prices paid to producers fell by 25% (5).

    No Effect on Small Retailers or Employment in Retail
    The Minister and the government here is playing a simple verbal trick. The fact that some retailers “continue to coexist” does not in any way mean that most small retailers will not be pushed out of business.
    Indeed, the data is exactly opposite to the claim that there is no evidence of harm to small retailers. Here are citations and figures:
    In Brazil, share of street markets in fruits and vegetables declined by 27.8% between 1987 and 1996; in dairy sales, share of dairy stores fell by 27.8% and open air markets by 53.3% (7).
    Argentina: Number of small stores dropped by 64,198 between 1984 and 1993 – 30% of the shops in the country. Employment in retail sector dropped by 26% in the same period (8).
    Chile: between 1991 and 1995, ‘traditional’ food and beverage retailers declined by approximately 20% in all segments (9).
    Indonesia: between 2002 and 2003 – just one year – number of ‘traditional’ grocery stores fell by 154,148 stores, or 9% (10)
    Latin America: supermarkets now control 60% of food retail (11).
    East Asia other than China: 63% of processed / packaged foods controlled by supermarkets, estimated 30% of fresh foods (12)

    Benefits to Farmers
    Most purchase for corporate retailers occurs through contract farming. This actually has negative impacts on most farmers.
    All studies of contract farming and corporate food retail show that small and marginal farmers are unable to access the supply chain (15)
    More than 90% of India’s rural population has less than 2 hectares of land and 79% are either landless or own less than 1 hectare. Practically all of these people will be excluded from the corporate supply chain.
    Abuses of power by corporate retailers include:
    delayed payments (example from Argentina here (17)
    arbitrary quality standards (Oxfam 2004 study cited above has very good examples including, for instance, sudden demands that apples should be exactly 65 mm rather than 63 mm),
    passing on of costs for discounts and promotions to producers (Vietnam for instance (18)
    and simple default on contracts, as has happened in India (several studies, some with a lot of data; a summary reference is Jayati Ghosh and CP Chandrasekhar here (19)
    Global sourcing of fruits and vegetables puts intense pressure on producers to reduce prices to compete and to satisfy the requirements of the corporate retailers (FAO 2005 study)

    Corporate Retailers Already Exist, So FDI Will Not Cause Additional Damage
    This is simply an irrelevant argument. The small presence of corporate retailers in India’s markets today is a reflection of the fact that in themselves, corporate retailers offer nothing in the sense of retailers that allows them to out-compete the existing system. This is why the entry of FDI has been shown to be the single determining factor that permits large-scale expansion of corporate retail in developing countries.
    The large quantities of money that FDI provides permit retailers to displace existing suppliers and establish monopolies or oligopolies when purchasing produce; to absorb losses and hence fix lower prices until the competition is wiped out, whereupon prices will be raised (i.e. predatory pricing); and to pressurise governments into bending regulations and subsidising their activities (the latter is already visible among existing corporate retailers).
    The simple reality is that, if corporate retailers were simply going to grow alongside the existing system without displacing anyone and purely because of their better results, they would have done so already to a great extent. Why have they failed?

    …Inherently, in order to make profits, corporate retailers need massive economies of scale in order to offset their very high overhead costs (in contrast to the low overhead, decentralised existing system). Some of the resulting impacts include:
    Privileging good looks and long durability over taste and nutritional value, so as to permit price hunting and delayed sale of produce: The result is that, as is widely known, fruits and vegetables in supermarkets tend to have less taste, are lower in nutritional value, and are often picked when unripe. This is one reason for rapid growth of the “organic food” market in the industrial countries.
    Massive increase in use of energy and water for processing, packaging, and transport…
    Sharp rise in use of pesticides, additives, preservatives and other chemical agents to increase the shelf life of food, with attendant health consequences
    ********
    Adding some comments from the post too
    FROM ravi
    My basic problem with this sort of analysis is that it is not desirable to generalize that therre will be only negative impacts based on some case studies in different countries. It is possible that the industry that favors FDI can cite success stories to counter this. The question is what has been the impact of/experience with chains like Big Bazar, Reliance in India. have they negatively affected farmers? have they resulted in loss of jobs. I know it may be difficult to quantify but some analysis with data will help. Given the fact that there is enormous wastage of vegetables and fruits in this country investing in supply chain and
    infrastructure can reduce that. If private sector does that it may help farmers and consumers. On the other hand those who criticise such FDI should also suggest alternatives like co-ops, local food systems supported by consumers and come up with some meaningful suggestions. I am tired of vague generalizations presented as critiques
    because they stop with that. I have seen and shopped in western retail chains in China and they are patronized by chinese although their presence might be limited. I wont be surprised if China offers them opportunities to open more stores.
    FDI in retail can have +ve & -ve impacts.One side talks of the -ve side while other side
    highlights +ve side. The real effect may be in between. But let us not forget that the presence of KFCs, McDonalds, Pizza Huts has not displaced traditional hotels. Perhaps a section of Indians are customers of both and the proof is in the increasing levels of
    obesity :(

    FROM Murali
    Unfortunately, this ‘detailed study’ completely misses the big picture, indulges in statistical scare-mongering using selective data and have one believe that the fundamental laws of economics don’t make sense. I don’t know whether the statistics is verified or verifiable, but I assume them to be 100% accurate.
    Lower Prices and Investment in Cold Chains:
    So, basically these guys sell inferior products (less tasty, lower nutritional value, unripe etc.) at higher prices, as much as 14% higher, while providing not even convenience – the kirana store is across the street whereas the corporate retailer is a good 10 km drive on pot-holed, congested roads – and still drive out competition. They must be some sort of marketing wizards. If there is a Nobel prize for marketing, these guys should be awarded it without debate.
    We didn’t know that the international food market is controlled by Walmart, Tesco and Carrefour. Thanks for enlightening.
    Effect on small scale retailers:
    None of the statistics say how the overall market in its entirety moved. Did it expand or decline? How does that percentages look in absolute terms? Did the share of the small sector increase or decrease in absolute terms? Whatever be the answer, there is nothing unusual in businesses going out of ‘business’, given the scale of changes in the market. The question is whether the consumers are benefited as a result. The markets are and should be consumer oriented.
    About the Indian small scale retailers, it is stated many times that the segment they cater to is different from that targeted by the big retailers. As an example, 70% of the shampoo sold in the country is sold in small sachets. Cigarettes are sold loose (they are not meant to be, by the way).
    Benefits to Farmers:
    Practically all of these people will be excluded from the corporate supply chain as if they have access to any supply chain today. The mandi system is a corrupt system riddled with goondagiri and abuse of power. Corporate retailers can’t make the situation any worse.
    Data currently says that four or five companies control 40% of the international trade in several types…
    Wow! Bless those souls who collected that data. Those evil corporates each has a huge market share of.. 8-10%. Let us see how some other evil entities do in their markets. Intel – 80.6% of the microprocessor market. Microsoft: 85% of the desktop OS market. Nokia – 31% of the mobile phone market (was 38% last year). The idea that if a business entity has X% of the market share it also has X% “control” on the market is nothing but an artefact of journalistic sleight of hand and socialistic education. This is what I call statistical scaremongering.
    Abuses of power by corporate retailers..
    As if none exists in today’s system. Ask any farmer. I did. One of my colleagues has a sugar-cane farm in the Belgaum district of Karnataka. All these tactics listed here are employed by the politically connected sugar mill lobby as of today.
    Corporate Retailers Already Exist..
    Far from ‘demolishing’ the argument, the author hasn’t even attempted to give an unconvincing answer, apart from asking another question. Why indeed corporate retail fail? What parameters are different for the multinationals? Is it this:
    The large quantities of money that FDI provides permit retailers to displace existing suppliers and establish monopolies or oligopolies when purchasing produce; to absorb losses and hence fix lower prices until the competition is wiped out, whereupon prices will be raised
    How many times have we heard this kind of argument in the context of privatization/liberalization? Did it ever happen in real life anywhere where free markets exist? Only academics who don’t have the foggiest idea how businesses and markets work in the real world would make these kind of arguments.
    The growth of corporate retail not only will not address the key problems plaguing India’s economy today
    Here we can agree, minus the ‘not only’. India ranks a miserable 124 in the economic freedom index. With FDI in retail industry, we may move up a notch, to get ahead of Pakistan. FDI in retail is a hesitantly taken baby step in the right direction and there remains hundreds of miles ahead, before we sleep or whatever.
    The opposition to FDI is in fact economic nationalism dressed up as some higher principle. Though the left misses no opportunity to berate the Hindutva guys for their nationalism, the economic/resource nationalism of the left has been far more insidious to the nation.

    FROM Asti
    The article is quite a bit aggressive in projecting the consequences of corporate retail as a flood tide of negative, cascading side effects. I say projecting, because there is no other market with such retail density or as expansive as this one. With this line of “interpolatory” reasoning, you might as well claim arbitrage/futures trading/speculation in the food market by institutions abroad is driving up prices, and that the government should condemn these practices.
    Can someone actually do an impact analysis with India’s retail density, the consumer trends relevant to 2011, with data from existing corporate retail in India and retail conglomerates in other countries? That would be much better than saying X had Y side-effects in Z, and so should cause the same effects in K, learning from the past or not.

    FROM Anjali Iyer
    Quite agree with the concerns laid out in the article. However- just to consider the opposite side to this. Bringing in the context of a flagging agriculture industry in India that is extremely inefficient in managing the supply-chain between the producers and the consumers- there maybe valuable lessons to learn from these retailers. It would be in their best interests to help set out the infrastructure, storage systems for the products they source. The farmers may truly benefit by streamlining systems.
    In a labour-abundant market like India, this would trigger a highly needed boost to our local manufacturing industry that will no longer have to worry about retailing its products. The retails would trigger a demand for locally manufactured products since they would be cheaper than what they outsource from say, China or Taiwan (unlike the case in US where labour has always been expensive). If Walmart is smart (sure they are), it would be in their best interests to explore(exploit?) what India has to offer and re-formulate their strategies instead of blindly replicating their business models from elsewhere.
    Regarding the ethical issues mentioned in the article (climate change, health hazards, monopolization) can’t they be handled in the form of checks and balances laid out in the form of government regulations? Based on lessons learned from the fallouts of these models around the world? (The govt. has promised that it would review these every 6 months.)
    Basically, I am questioning if we are throwing the baby out with the bath water? Is there something that the FDI brings to the table that can handle India’s no.1 challenge- mass employment? I see the potential along with the hazards. Your thoughts, please!

  • 20. Patriot said:

    Oh, btw, I missed one example in the above posting – FDI is already allowed in one part of retail – the cash and carry segment (essentially a wholesaler selling to the retailer).

    Metro, a German Big-box cash and carry chain, opened its first (and to date, its only – to the best of my knowledge) mega centre in Kolkata (of all cities!) about 2.5 years back. It is a huge store, with a footprint of more than 100,000 sq ft, a nearly equal size yard for delivery trucks and parking. This is off the Eastern Bypass Road between SaltLake and Garia (if you are ever driving on that road)

    It has been a huge hit with all the retailers (and many resourceful consumers) because of the sourcing power of Metro. It is probably the only Big Box that has more than 15% of its sales coming from vegetables and fruits. Farmers have led no agitations against this retailer, nor have any small groceries nor had the politicians.

    Pls tell me why Metro has been such a huge success, and a win-win in Kolkata? And, why we should not expect the same for other Big Box retailers?

    Cheers

  • 21. Patriot said:

    Shantanu,

    Good to see that the policy wonks of EPW, who are still stuck in Marxist Leninist USSR (glorious may be his reign!), are being called to task by commentators on EPW itself.

    That is really, really good to see. I was going to start shouting, selecting data, data massaging, unwarranted and unsupported conclusions before I read the comments!

    Cheers

  • 22. Malavika said:

    @Shantanu,

    You need to provide links and some hard data as to where in the world has Walmart or big box retailers improved infrastructure. All I see is wishes and PR in favor of big box retailers.

    The article “FDI in Retail: Examining Some Issues in Agricultural Products” by Girish LN just talks about FDI and agricultural products. Where as Walmart’s agri products are procured from China, Brazil, Central America to sell In US. One reason for this is exchange rate paradigm. Even then Agri products are just 31% of overall sales which consists of Grocery, candy and tobacco. So, rest of 70% sales is in apparel, electronics, paper goods, manufactured goods etc. So, how will India pay for huge imports without causing balance of payment crisis.

    “Big box retailers especially Walmart squeeze suppliers bone dry. In US the suppliers could not meet Walmarts procurement prices without shipping their manufacturing to countries like China. Doing so enabled China to master manufacturing know how and expertise. This massive transfer of technology helped China become the manufacturing powerhouse and also a net exporter. US has become a debtor nation from a creditor nation. Having the worlds reserve currency Dollar, helps US at least in short run. Can India afford to import manufactured goods at the expense of local manufacturing? India with its weak laws and without anti dumping or anti trust laws is going to be a free for all. As it is India’s oil import bill in 2010 was nearly 76 billion dollars, can we afford to import more stuff that can be made here?”
    http://sepoywatch.blogspot.com/2011/11/fdi-in-retail.html

    http://www.oecd.org/dataoecd/38/25/48368733.pdf
    http://www.uwex.edu/ces/cced/PercetnageofSales.cfm

  • 23. Patriot said:

    @ Malavika:

    See my post above re: competing with China – we compete very well with them on certain products, not so well with them on others, and absolutely fail on still others.

    I have a question for you – Power is a hugely scarce resource in India, and the gap in availability can reach 8 hours sometimes even in the suburbs of Mumbai. Typically, a power plant costs Rs4.5-5.0cr per MW to build (@ Re/$ = 45). Chinese companies have started competing against BHEL, etc by offering the same quality or better quality plants at Rs1.5-2.0 cr per MW.

    Are you going to say NO to them?

    Cheers

  • 24. Patriot said:

    @ Malavika:

    Another query about trade deficit – which is what you are really talking about when you say can India afford more imports.

    As an individual, you have run a serial and increasing trade deficit with your local grocer – what are you going to do about it? What are you going to sell to him/her to compensate for all these imports to your sovereign household?

    Cheers

  • 25. Malavika said:

    Some excerpts from
    FDI in retail: Whom are you kidding, Mr PM?
    http://www.rediff.com/business/slide-show/slide-show-1-column-fdi-in-retail-whom-are-you-kidding-mr-pm/20111130.htm

    Big Box retailers do not help farmers, in fact they squeeze them more.

    “Regarding farm incomes, let me illustrate. Till 1950, a farmer in America used to receive about 70 per cent of every dollar spent on food.

    In 2005, it had come down to not more than 3 to 4 per cent. If the middlemen have been squeezed out, as is being made out, farmer’s income should be increased.”

    Walmart increases poverty. In fact several Walmart employees made use of Medicare in California. I,e Tax payers subsidize Walmart.

    In this eye-opening study, entitled “Wal-Mart and Poverty”, the comprehensive study clearly brings out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up.

    “Equally important, the counties (districts) which built new Wal-Mart stores during the period 1987 to 1998 also had high poverty rates,” the report concludes.

    Interestingly, increased poverty growth from Wal-Mart operations comes at a time when poverty rates nationally in America were otherwise going down.”

  • 26. Malavika said:

    @Patriot,

    “Chinese companies have started competing against BHEL, etc by offering the same quality or better quality plants at Rs1.5-2.0 cr per MW.

    Are you going to say NO to them?”

    You are comparing infrastructure(power plants) with retail. Which is totally wrong. You can live comfortably without cheap stuff from IKEA or Walmart.

    What guarantee is there to ensure that we are not left holding the bag like Enron. Read my earlier post.

  • 27. Malavika said:

    @Patriot
    “another query about trade deficit – which is what you are really talking about when you say can India afford more imports.”

    Yes, India cannot afford to let its manufacturing get hollowed out like US and UK. US has printing press, how do you expect India to pay?

    “As an individual, you have run a serial and increasing trade deficit with your local grocer – what are you going to do about it? What are you going to sell to him/her to compensate for all these imports to your sovereign household?”

    Dude, my household is not a sovereign, and my local grocer or carpenter is not my competitor. Read up on ECON 101.

  • 28. Patriot said:

    @ Malavika:

    Goods are goods – there are no good goods or bad goods – there is only demand and supply. This is the first rule of economics.

    You say:
    “You are comparing infrastructure(power plants) with retail. Which is totally wrong. You can live comfortably without cheap stuff from IKEA or Walmart.

    What guarantee is there to ensure that we are not left holding the bag like Enron. Read my earlier post.”

    I love Ikea and I feel my life is going to be incomplete without Ikea shops. Walmart, I can take or leave, but I do like the sourcing power of Walmart – for eg, whenever I have shopped in the US Walmarts, I have only bought various types of Johnson&Johnson products (baby cream, baby lotion, baby shampoos, etc) and then used these for my kids and/or gifted them to my cousins’ kids, etc – I am the favourite uncle of all my relatives, given how expensive these stuff is in India!!!

    On the other hand, I do not particularly care about power – given that I have 24×7 power supply in Mumbai and can afford to run my house on inverters, if there is not going to be any power supply.

    Why should I accept your choices, and not demand that mine become the law of the nation?

    RE: Enron – you are mistaken – explain to me how the taxpayer lost any money on the Enron deal. Having said that, it was an example of crony capitalism, and an one-off exception made by a local govt. I am against all discretionary powers of politicians or bureaucrats, which enable an Enron to happen, or for that matter the 2G scam. Enron and 2G are related matters. But, not Enron and FDI in retail.

    Cheers

  • 29. Patriot said:

    @ malavika:

    You say:
    “Yes, India cannot afford to let its manufacturing get hollowed out like US and UK. US has printing press, how do you expect India to pay?

    “As an individual, you have run a serial and increasing trade deficit with your local grocer – what are you going to do about it? What are you going to sell to him/her to compensate for all these imports to your sovereign household?”

    Dude, my household is not a sovereign, and my local grocer or carpenter is not my competitor. Read up on ECON 101.”

    This is an invalid demarcation, if you are an economist or have studied economics. Nations, like individuals, should concentrate on producing what they can do best – whether that be potatoes (Ireland) or cars (india, china, us, japan, germany) or IT engineers (US, India). There is no difference, as such, except if you seek to make sacred cows out of a certain human activity and not another.

    You did not get my second point at all about your trade deficit with your grocer – you are raising an important point about trade deficits – and how you pay for them (competition is not the issue here, you talked about balance of payments). The economics is the same if you are an individual or a nation – especially, as you so kindly point out, if you can not print your own currency. This is not a trivial point.

    Please read Adam Smith and Von Mises more carefully. Also, Ricardo on trade theory, and even Krugman’s work on international trade that won him the Nobel prize (as an aside, Krugman was such a good economist, before he became a Democrat mouth piece).

    Cheers

  • 30. Patriot said:

    While on manufacturing (a bit of a diversion, thanks to Malavika, but still important), here is an interesting link:

    The country’s biggest manufacturer is Indian. What does it seek from and give to Britain?
    http://www.economist.com/node/21528653

    Think a bit about this, as we debate trade and investment. And, also the investment climate in India. And, why Tatas, Bharti, Vedanta, Mahindras, Birla are all expanding and investing outside India at a faster pace than in India.

    Cheers

  • 31. Malavika said:

    @ Patriot,

    You are mouthing platitudes rather than answering concrete questions.

    You just don’t get it, Household is not a sovereign. Which economic theory says that? You are indulging in false analogies.

    Yes, read Krugman now. He is all for ‘controls’ now. Read up on Warren Buffet and export controls and this
    http://www.pbs.org/wsw/news/fortunearticle_20031026_03.html.

    Also read up on Bill Gross, Jeremy Grantham etc, they actually walk the walk by investing money. They don’t indulge some theory, like Nobel Laureates of Long-Term Capital Management L.P. (LTCM).

    You still did not answer how will India pay for cheap trinkets from Walmart and IKEA.

    How will majority of Indians benefit? Not just an extremely selfish and self centered consumers like you.

    How will farmers/manufacturers benefit?

    US now has current account defect of nearly 2 billion dollars and the stimulus provided to US citizens flows to China. US covers this by printing, what should India do?

  • 32. Patriot said:

    @ Malavika:

    If I am mouthing platitudes, then you are spouting socialistic rubbish that has proven to be wrong.

    Yes, I currently sneer at Krugman’s fall from being a good economist to being a political hack, and nothing more.

    Are you referring to Bill Gross of PIMCO? What has he said (links please) where he denounces big retail? I would like to read that.

    Ditto for Warren Buffet – pls provide links where he denounces competition from China, support tariff barriers so that American manufacturing can flourish or where he bashes Big Retail. I am a huge fan of Warren Buffet (for his investing genius), and read practically everything that he writes or says.

    If you are of the ideological frame of mind of being a paternalist and creating a nanny state, then we can never come to a conclusion, as for me individual choice and freedom is supreme.

    How will India and Indians pay for the trinkets – the same way they pay for their trinkets now. Why will it be different? And, why such a supercilious attitude to what I want to buy, and a holier than thou attitude to what someone else wants to buy. And, sure I am selfish – that is what runs the economy – the self interest of millions of consumers.

    Why don’t you answer my query on your trade deficit. I used the word “sovereign” for your household in a manner that you clearly did not understand – leave it, that description is not important (it is an American or English view, I guess – my home is my castle). Explain to me how your household economy bears up under the strain of the trade deficits that you run with your grocer, maids, hair dresser, tailor, etc?

    I am not interested in any socialistic, paternalistic thinking, which has only created poverty in India, since Nehru stuck India into the Soviet Model. And, I will not spend my time debating these theories, which have been conclusively proven to be ineffective and falacious.

    Thanks

  • 33. Malavika said:

    @ Shantanu,

    Some where in one of your posts you mentioned that ‘if FDI in retail is good it should be allowed’. You need to define ‘good’ here.

    IKEA, Walmart give cheap stuff for consumers in the short term.

    However they also cause extreme hardships to the society as a whole, impoverishing artisans(Carpenters), farmers, traders and manufactures.

    I am still waiting to see some evidence of how these big box retailers help artisans(Carpenters), farmers, traders and manufactures as touted by the Congress establishment.

  • 34. Patriot said:

    Oh, BTW, my job is investing money, too, and generating a market-beating return. And, I actually invest in small and medium sized companies – I know first hand what ails them and how they compete. And, this was Shantanu’s job, too, before he decided to embark on a political career, full time. Care to tell us about your experience or qualifications? I only ask because you sneered at ours.

    And, I just saw the name of Jeremy Grantham of GMO being bandied about in the above post – again, pls provide links where he supports a socialistic framework and says that free competition is a bad idea.

    Thanks

  • 35. Ravindra said:

    Dear Shantanu,

    This is what dr.subramanian swamy has tweeted:

    “Foreigners get loans at 4% interest. Indians get at 12%. How can we compete.China had wiped out their traders so they need.”

  • 36. Ravindra said:

    The idea behind Dr.swamy’s protectionism is national interest. In his own words…

    “@TRISH00L : Protecting national interest. Just because the whiteman has money it does not mean we should import foreign bridegrooms.”

  • 37. RC said:

    US has printing press, how do you expect India to pay?

    LOL!!! When a clueless person makes statements based on what they have read in news without understanding, hilarity ensues. The poster of the above also had the nerve of asking others to read ECON101.
    BTW, even India can devalue its currency ( or run a printing press ), nobody is stopping them. In fact the present socialist government is devaluing its currency by inflation as we speak.

  • 38. Anubhava said:

    In my opinion none of these so called “videshi sharks” (superstores) can give any competition to a smartly operating local kirana store. Superstore experience is not new for Indian consumers. Big Bazaar has been there for 10+ years, selling pretty much same food items and other “made in china” cheap stuff as does the Walmart. I haven”t come across any report of it eating pie of local mom & pop shops. If anything it has made them innovate to give better services to shoppers.

    After spending about 14 years in US I recently moved back to India. In US I was pretty much dependent on big retail chains to shop even the smallest of household grocery item, which was very annoying & frustrating in harsh cold winter with icy roads or a day before a looming big storm. I can only admire the way neighborhood kirana shops are smartly operating and doing their business here in India. They’re using their biggest asset i.e. affordable manpower really-really well. Helping out needy customers to carry heavy bags to their vehicles or even to their neighborhood residents, tele-shopping (taking orders over phone and free delivery to home) and not to forget their readiness to negotiate price etc are some of the value added services, one can get so easily here cannot be matched by any of big superstores. On one phone call they are even ready to bring many brands of same item to my doorstep to let me choose one from the lot.

    However one area where these local stores need to do better is to come up with improved “return and exchange” policy. IMO it is mostly this 90 days “return and exchange” policy that makes shoppers buy many extra items from superstores in US.

  • 39. Anil Sharma said:

    To all those who believe in protecting the small retailers and local kirana shops I ask you this:

    Do you support reservations in India?

    If not, then why reservations in business?

    It’s only competition that brings about innovation and works best for the consumer. Think of the biggest of capitalists in the telecom industry viz. Tata, Birla, Ambani, Mittal, Voadafone etc.; when the capitalists compete with each other the consumer benefits.

    Jai Hind.

  • 40. Prakash said:

    In this context, a few other aspects need to be debated. Here is a short list.

    1. Food wastage.
    2. Ultimate cost of delivery to household. In general, bigger the retailer, more it is.
    3. Pricing power. Who (farmers, customers, small and medium scale businesses that cater to ready food needs) will lose and who will win? So many small and medium farms in England/UK have had to shut shop because they were squeezed out by supermarkets holding all the pricing power.
    4. Is lack of local capital the main bottleneck in Indian progress in this area?
    5. Already milk in Mumbai costs (about 40 Rs./litre) more than it does in London (about 35 Rs./litre assuming 75Rs/Sterling, but the rupee has depreciated about 10-12% in last few weeks). Will FDI in retail reverse this?

    By the way, I saw an interesting interview of an Italian retail chain owner this morning. He seemed to be salivating at the prospect of entering India.

    I don’t need no powerpoint methinks.

  • 41. Prakash said:

    Sorry, I missed the most important point. I would have liked a vigorous debate and consultation about this issue, and then a decision. It seems to me that the decision has been taken before a public (parliamentary) debate. (Perhaps, everyone was engrossed in the ever so important debate about corruption and Lokpal so forgot to worry about this minor issue).

  • 42. AAryan said:

    There have been many issues raised regarding the FDI in India.
    Herewith I am summarizing the overview of the FDI and why it is not a threat to the society.

    Let us look at the picture at the basic level first, then the macro level (which has already been covered above).
    • Any entity (Foreign companies) invests money to make dividends (profits). So the main outcome of the investment is to make money. How much? The answer depends on the demand and supply of the market (when there are many options available) or necessity (when the supply is short).
    • The income, in the retail, is the difference of sales less purchase costs and expenses. Big retails have big expenses. So how these big retail makes their profits – with bulk discounts and reduced cycle time (sales).
    • The biggest expense is the shelf time. The product costs more if it sits on the shelf for longer time. How the big retails overcome this issue – clearance sale and returns insurance. They claim the returns from the suppliers.
    • Where do all these big retails focus on – Of course on the largest sect. of consumers, who are mostly “middle income – class”. What does the middle class buy from these big retails – basic necessities, short term supplies, consumable goods and mid-range household items.
    • Small retail cannot have the advantages of the big retail thus their business model need to differentiate from the big retail – one of the answers is custom market or niche market.

    So let’s consider that from now onwards only big retails will be allowed. What will happen to small retails and their entrepreneurship skills? They end up either working for big retails, or become suppliers to big retails. Does this affect the employment? None, as it just got shifted.
    Now let’s consider that from now onwards only good quality goods are allowed to be sold. Consumers devise the norms for the goods and their value. Small retails will lose their edge. The small retail cannot procure the goods at the price of big retailers. Why – the big retails have negotiation power in the international market and can find the quality products to satisfy the consumers. Why can’t we make the same quality goods in local market? The short answer – it depends on the Govt. policies and subsidies and the cost of resources and distribution.
    The basic fundamental of the Economic policy is to generate income resources and ensure that it improves the quality of life (QoL) of its citizens. Does FDI fulfill this agenda?
    • Firstly, it is bringing in the investment in. The capital investment stays in India.
    • Secondly, they will be paying taxes, build and support infrastructure. Why they will support infrastructure – the reason is they cannot operate without proper infrastructure, especially the cold chains, warehousing, utilities etc.
    • Thirdly, they will be investing in the training and other human development activities to stay ahead in the competition.
    • Fourthly, the manual laborers will get better wages. Thus the QoL of manual labor will improve.

    Now, the issue about the profits – Govt. can develop a policy of taxation in such a way that they can deduct charities and other upliftment programs.

    Lastly the issue of exploitation can be tackled by co-operative societies setting up direct completion to these retailers.

    Regarding the macro-economics part, I believe it has already been covered in the above comments from the Economists.

    ।। नमो भारतम् , नमो संस्कृतम् ।।

  • 43. AAryan said:

    The only issue is about the Entrepreneurship of the small retailers. If they still want to stay in the small retail industry and do not want to enter into the niche market, which big retailers cannot cater, is to provide best return or exchange policy, quality goods and best customised customer service.

    Secondly, they need to get together and establish the technical, testing and research centers where the small entrepreneur can get his products tested and get quality approved at the minimal cost.

    Thirdly, consumer protection needs to get tighter. Consumers need to avail their rights and should not allow the crappy goods business and demand quality audits and certification from the retailer.

    If the above three steps are taken then soon the big retailers gets wiped out.

    Then the vicious cycle begins again. The small retailers will take-over these big retailers and the retail industry is back to square one. OR The market will differentiate as the consumers will be more aware and the industry shifts into new gear.

    ।। नमो भारतम् , नमो संस्कृतम् ।।

  • 44. Malavika said:

    @RC,
    “LOL!!! When a clueless person makes statements based on what they have read in news without understanding,”

    tsk, tsk you are talking about yourself. Read up on Bill Gross, Kruhman, Warren Buffet before writing.

    “BTW, even India can devalue its currency ( or run a printing press ), nobody is stopping them.”

    Dollar is the world’s reserve currency. You missed this crucial fact.

  • 45. Malavika said:

    @Selfish Consumerist(Patriot)

    “Oh, BTW, my job is investing money,”

    That explains it. You belong to the FIRE(Finance, Insurance, Real Estate) group shuffling paper and coming up with CDS etc.

    I am an engineer and after 2000 realized the fraud of Wall Street wallas and learned about investing. Now we are fine investing our hard earned money.

    If your job is to manage money you should know that Bill Gross suggested bringing back manufacturing to US. It is on Pimco.com.

    You did not read the links I provided regarding Buffet’s import certificates. Which you should know already.

    http://www.pbs.org/wsw/news/fortunearticle_20031026_03.html

    You still did not answer how to pay for Walmart, IKEA imports. And how it helps Indian nation.

  • 46. Sudeep Shetty said:

    Hello

    I am posting this Video of Milton Friedman .. Understand this first
    http://www.youtube.com/watch?v=PJWLt1TmAy4&feature=related

    Its a Fact that in all these 60 years For long we had been influenced by Marx. In India our school syllabus advertises marxism. Our history and political science textbooks glorify communism and blind equality, In this video we can understand the Basic hardcore principle Of Economics , Its always the Consumer First , We ( Govt) always try to give best Products to Consumer on cheap price this is the hardcore principle of economic and Market, and rest will take care them self , so we need not to think much about middleman and other small scale industries , protection in any way and in any terms is bad to consumer and for country and for economic , and its true that Free Trade in short run makes imbalance but it will automatically rectified in long run ( acc to friedman it will be rectified in max to max 5-7 years )

    So its really no need to scare about free trade in any field and its non-scenes to talk about unfair competition there is no such word of unfair competition in economic

    Sudeep

  • 47. Patriot said:

    @ Malavika:

    Ah, indeed, stoop to abuse when logic fails.

    You have not explained your allusion to Enron and answered my questions about it.

    And, you have not provided an answer to my question about household trade deficits – if you do that, you would be automatically answering your question about how would India pay for IKEA or Walmart imports. BTW, do you know how much India already exports to IKEA and Walmart? In absolute $ terms – pls find out, you may be surprised.

    And, ah yes, you are an engineer – that is why you would call me selfish – a lack of understanding of basic economics and human behaviour. Adam Smith wrote about the Invisible Hand about 200 years back – I am sure you have not read it or even heard about it. Self interest drives all of us – some of us are even aware of it!

    And, yes, I have read that particular article of Warren Buffet, where he urges the US citizen to save more. How is that applicable to India where our savings rate is already 10x that of the US? Please explain.

  • 48. Patriot said:

    @ Prakash, you say:

    “I would have liked a vigorous debate and consultation about this issue, and then a decision. It seems to me that the decision has been taken before a public (parliamentary) debate. ”

    I agree completely. Education of the public, if opposed to a policy, is necessary, especially in a country like ours, where people think with their hearts. Legislators are responsible to the electorate, who put them up as their representatives.

    And, while I believe that the negative effects of FDI in retail are hugely blown up, such a policy should be implemented after adequate discussion and debate, and pointing out the phonies (opposition parties who oppose just because they can).

    Cheers

  • 49. Patriot said:

    Here is what Bill Gross actually wrote:
    http://www.pimco.com/EN/Insights/Pages/School-Daze-School-Daze-Good-Old-Golden-Rule-Days.aspx

    He is saying that US college education currently does not yield a positive or good RoI – so, why go to college?!!!

    And, he is commenting, as a fact, that manufacturing has moved out of the US – no where can I see him advocating bringing the smokestacks back to America – on the other hand, he does wonder about what will create 20 million new jobs in the US.

    It is amazing how people/media distort even written essays.

    Also, for those who don’t know PIMCO or William (Bill) Gross, PIMCO is the largest bond investor in the US, probably in the world, and Gross is the co-founder and co-CIO of PIMCO, along with Mohamed El-Erian.

    In the US, PIMCO is part of the group, derided by the socialists, as bond vigilantes – the socialists/leftists think that the US government is in too much of a thrall of investors in bonds, who can stop financing US trade deficits, if the US does not get its act into shape.

    A bit of a diversion this, but I wanted to nail all the so-called reasons put forward by Malavika to oppose FDI in retail.

    Cheers

  • 50. sudhav said:

    The fierce debate taking place here is a reflection of many things.It represents how economics is central to existence itself.. Indian and non-Indian. It also reflects that the unilateral decision the GOI seems to be making, (on the sly) and with disdain to the democracy that we hold dear.
    There is also a dichotomy of opinion where the dividing line seems to be between the ‘NRI’ type of view vs the indegenous Indian, broadly.
    But one thing is clear, it is a wakeup call for the small and medium sizes retailers to modernise their systems to survive, or perish. The Walmart et al group do not want to serve the Indians from the goodness of their heart… they want a piece of Indian market. It is the new imperialism. Surely this is what Gandhiji was trying to fight..to keep it all swadeshi. This is increasingly difficult as all things are going global.
    I agree that the GOI should not afford protectionism,especially to poor and bad practices. However the local industry also need to be innovative, and it needs support from the goverment. Why have people been sleeping deeply and for so long?
    India does not have much technology. India does not have oil.. and if it did I sometimes wonder what other crisis it would be going through.The ‘freedom struggles’ happening elsewhere seem to be a cover for control of the oil.
    Another totally unrelated question.. Why is Hilary Clinton visiting Burma? There is too much America everywhere.

  • 51. Patriot said:

    Excellent points, Anubhava and Anil.

    Nice analysis, Aaryan.

    Cheers

  • 52. Patriot said:

    @ Sudhav:

    I am indigenous Indian, whatever that may mean, and I am firmly on the FDI side of the debate! You hit the nail firmly on the head – why have local businessmen and industry been sleeping for so long?

    In this context, I remember the old Bajaj Chetak scooters – there used to be a waiting list to buy them in the 80′s and people would even re-sell their waiting list numbers for a premium! And, those scooters were so horrible – you even had to tilt a Chetak to kick start it on cold mornings! And, forget about any questions on electronically operated engines and fuel efficiency!

    And, guess what – Rahul Bajaj was one of the founders of the infamous Bombay Club that was set up to fight the opening of the Indian economy in 1992. And, again, today, Bajaj has innovated so much that it is one of the leading 2-wheeler manufacturers of the world, beating both the Chinese and the Japanese manufacturers. Bajaj did take some technology from Kawasaki in the late nineties to kickstart the innovation process, but now its all its own technology.

    And,
    “Another totally unrelated question.. Why is Hilary Clinton visiting Burma? There is too much America everywhere.”

    Better than there being too much China everywhere!

    Cheers

  • 53. sudhav said:

    @Patriot
    I accept the points about the Bajaj scooters that you make. I would still argue that the GOI needs to support local business to innovate, before activating the FDI. The FDI should be unleashed in a controlled manner,to allow time for the local business to innovate and upgrade their practices. Otherwise the contrasts that exist in India- of the very rich and the poor will become even more stark. FDI has the capacity to abuse the aam admi in a very serious way, through its size, political alliance and its financial capability.
    Re: rather too much America than China.One of my worries is that the US has tried its best to use Pakistan strategically in that part of the world, initially against the USSR, and then probably against India.
    If the USA and China join together for their mutual interests, that region, mainly India could be in a precarious situation.

  • 54. Patriot said:

    Dear Sudhav,

    You make two contentions – I would like you to explain these contentions.

    1. The Govt of india should support local businesses – why? Do remember that the average citizen is a worker for 8-10 hours, and a consumer for the remaining 14-16 hours. So, why should the Govt of India not work only for the Consumer?

    2. FDI can be abusive – how? RBI controls capital flows into this country. We do not have full convertibility. And, RBI keeps a strict watch on all FDI flows. (In fact, as an aside, if we had an RBI equivalent for tracking unpaid taxes in this nation, we would have been so much better off – the latest shocker is that Kerala politicians are resisting the Income Tax Office’s efforts to bring all co-operative banks in Kerala into the Tax Information Network. It is alleged that the co-op banks have huge stashes of unaccounted for wealth)

    Cheers

  • 55. B Shantanu (author) said:

    Dear All: Thanks for sharing your thoughts and insight…I am learning a lot and it is great to see people debating and discussing with references and data…
    Will try and respond by the weekend to some of the points raised (incl your question Malvika re. data about WalMart etc’s investments in infrastructure – part of the answer is of course they will have to because there is no option if they wish to operate successfully). Thanks all..

  • 56. Vijay Mohan said:

    Local Kirana Stores
    ->Available within Walking distance, no need to take out the Car
    ->Most of the families own one car mostly driven by husbands to office
    Wives generally don’t wait for husbands to return and Husbands are not willing to drive after return to home
    ->Its much more comfortable for wives to go to or call local kirana store .
    ->Kirana store wala knows most of the customers by name
    ->Monthly Billing ( Udhaar )
    ->Small quantity buying e.g.. 2 Eggs , 2 shampoo sachet
    ->Small Shops but it is something miraculous that I rarely found items(of daily use) missing , I do find the stuff missing from big marts though.
    ->They remember the price of items and are much quicker than scanning machine and calculations
    ->They home deliver.
    ->They are open 6 AM to 11 PM
    ->Big Retailers will actually enable these local vendor to buy stuff at less rates.
    Ready for the challenge the new big retailers , You need to do something magical to earn profit.

  • 57. Vijay Mohan said:

    ->Protestors against FDI in retail broadly say it will kill employment as people will buy cheap products from marts. For saving money people will not go to local retailer. Hence I divide the current battle is between savings and employment.
    ->Though I do not agree to the debate as the retail industry will surely create employment and Local retailers have there own advantages (previous message )to be in the industry.
    ->But For those who think differently , I suggest

    Stop cooking at home , Go to restaurants or other options
    Stop walking and use rickshaw or taxi
    Stop shaving at home , Go to Naai ( Barber )
    Start breaking windows as much as possible
    Stop using emails , write letter on paper and mail it
    Stop buying readymade clothes and start getting clothes stitched from local tailor
    Stop using any measure of saving money as that kills employment

  • 58. Patriot said:

    @ Vijay:

    Brilliant comment at no. 57 – I never thought of this issue in that manner, but you are absolutely right.

    Cheers

  • 59. Malavika said:

    MR Venkatesh on voodoo economics.

    “By setting up a few malls in our cities one is not sure as too how the government can control inflation across the country. Either our government is too naive or simply believes in voodoo economics. Mostly the later, it appears.”

    More important is the background to FDI in India policy is made in USA

    “In the run up to the visit of American President Barack Obama to India in 2010, Wal-Mart chief executive Mike Duke arrived in India a few days earlier to set the stage with a strong pitch for liberalising this industry.

    Duke is reported to have stated that 100 per cent FDI in the Indian retail sector would ‘help contain inflation in India’. He added that FDI in retail would contain inflation by reducing wastage of farm output, as 30 per cent to 40 per cent of the produce does not reach the end-consumer.

    Also, “In India, there is an opportunity to work all the way up to farmers in the back-end chain. Part of inflation is due to the fact that produces do not reach the end-consumer,” Duke said.

    If controlling inflation was supposed to be an incentive to the consumer, Duke offered palliatives for Indian manufacturers too. According to him, allowing FDI into this sector “will also enable Wal-Mart to increase sourcing of products from India by developing more vendors here.”

    Well, if press reports are to be believed, the Kaushik Basu report in 2011 faithfully reproduced these arguments put forth by Mike Duke.

    For the uninitiated, fashioning policy formulations by working through the government is part of a larger business strategy adopted by multinational retail giants.

    Those who have been following developments in the past few years know that Wal-Mart alone must have spent millions of dollars in India for lobbying with our government to open up retail sector for FDI.

    President Obama, no less, too is reported to have lobbied hard with the Indian government during his visit to India last year.

    Is the Kaushik Basu report merely a part of this larger design? Or is merely coincidence? Was it a command performance? Well, your guess is as good as mine.

    Nevertheless, we seem to ignore that the Doha Round negotiations are underway for over a decade now.

    By unilaterally opening retail to foreign trade, we run the risk of getting far less in the multilateral negotiations of the Doha Round. And in such a scenario, we could end as net losers.”

    http://mrv.net.in/index.php?option=com_content&view=article&id=243%3Avoodoo-economics-fdi-in-retail-will-curb-inflation&catid=2%3Aindian-economy&Itemid=3

  • 60. Malavika said:

    @Patriot

    “And, you have not provided an answer to my question about household trade deficits ”

    You did not answer which trade theory says House hold is a sovereign.

    And you did not answer any of the questions I raised.

    “And, ah yes, you are an engineer that is why you would call me selfish a lack of understanding of basic economics and human behaviour. Adam Smith wrote about the Invisible Hand about 200 years back I am sure you have not read it or even heard about it. Self interest drives all of us some of us are even aware of it!”

    You presume too much. I am an engineer and a CFP.

    “And, yes, I have read that particular article of Warren Buffet, where he urges the US citizen to save more.”

    Wrong again. Why do you misrepresent so much? Buffet was/is arguing for balanced trade.

    Buffet said:

    We would achieve this balance by issuing what
    I will call Import Certificates (ICs) to all U.S.
    exporters in an amount equal to the dollar
    value of their exports. Each exporter would,
    in turn, sell the ICs to partieseither exporters
    abroad or importers herewanting to get goods into the
    U.S. To import $1 million of goods, for example, an importer
    would need ICs that were the byproduct of $1 million of exports.
    The inevitable result: trade balance.

    The likely outcome of an IC plan is that the exporting
    nationsafter some initial posturingwill turn their
    ingenuity to encouraging imports from us. Take the
    position of China, which today sells us about $140 billion
    of goods and services annually while purchasing
    only $25 billion. Were ICs to exist, one course for China would
    be simply to fill the gap by buying 115 billion certificates annually.
    But it could alternatively reduce its need for ICs by cutting
    its exports to the U.S. or by increasing its purchases from us. This last choice would probably be the most palatable for China, and
    we should wish it to be so.
    If our exports were to increase and the supply of ICs were
    therefore to be enlarged, their market price would be driven
    down. Indeed, if our exports expanded sufficiently, ICs would be
    rendered valueless and the entire plan made moot. Presented
    with the power to make this happen, important exporting countries
    might quickly eliminate the mechanisms they now use to inhibit
    exports from us.

    http://www.berkshirehathaway.com/letters/growing.pdf

  • 61. Malavika said:

    @Shantanu,

    “Malvika re. data about WalMart etcs investments in infrastructure part of the answer is of course they will have to because there is no option if they wish to operate successfully). Thanks all..”

    No. Wishful thinking.

    Walmart will not pay a dime. They will make govt build infrastructure for Walmarts benefit and not for India. In US Walmart employees apply for food stamps and medicare(free health care for poor) paid by tax payers. It is just foolish to expect them to behave like angels in third worlds countries.

    They are entering Indian market to make money not for charity as others have pointed out.

  • 62. Malavika said:

    @ Vijay Mohan,

    We think different and ignore your suggestions.

  • 63. Malavika said:

    @Sudhav

    “FDI has the capacity to abuse the aam admi in a very serious way, through its size, political alliance and its financial capability.”

    Absolutely true. Those arguing for FDI in retail should explain how it benefits Indian farmers, manufacturers and artisans(Carpenters, etc). There is ample evidence of big box retailers pernicious effects on the local community.

    Instead all I see is name dropping and fuzzy logic. US is suffering from the effects of huge trade imbalances, its unemployment is huge officially 9% (real 16-17%). In spite of zero interest rates the real economy GDP, unemployment is stubborn. The only result of zero interest seems to be increasing stock asset prices.

    At least some US business men and intellectuals like Gross, Buffet, Grantham etc see the writing on the wall. I don’t see why we should adopt a failed Anglo Saxon model. Countries who managed to keep their manufacturing like Germany, France and Japan are doing ok. B.t.w they severely restrict big box retailers.

  • 64. B Shantanu (author) said:

    @ Malvika (#61): Sorry. I should have been clearer. I meant Walmart’s investments in their own infrastructure (both hard e.g. containers, warehouses, IT systems and soft: training, skills development).
    And yes, they will look at the government to develop the roads and the ports but the benefits of that development will be felt by all businesses not just Wal-Mart, no?
    Separately, thanks for persisting with the debate and discussion..I am developing a more nuanced view on this – not least due to points made by you and others. T

  • 65. AAryan said:

    @ Sudhav – said in #53: FDI has the capacity to abuse the aam admi in a very serious way, through its size, political alliance and its financial capability.

    Actually, what you said is conflicting with the business model of all the big retailers. Yes, they will be here to make money, but not squeezing “Aam Admi”. If they do then the effect will be on the Govt. and Govt. need to be shrewd too.

    @ Malavika requested in #63: Those arguing for FDI in retail should explain how it benefits Indian farmers, manufacturers and artisans(Carpenters, etc). There is ample evidence of big box retailers pernicious effects on the local community.

    It will not directly benefit Farmers, manufacturers and artisans, as they are in direct competition for their current products. Thus, they need to innovate and become suppliers to these big retailers. How? There are tons of examples – One: The solar power and bio-energy… in Canada these small suppliers became the suppliers to these big retailers (The project was co-funded by Wal-Mart and Toronto’s TTC). Two: Totes, shelves and Buggies – These small manufactures and artisans became the suppliers to Wal-mart, IKEA, Home-depot etc. for their store fixtures, Cold shelves, warehouse structures etc. Three: Chips: The Potato farmers came out with an innovative idea – their co-operative is producing organic 0% trans-fat chips and Wal-mart and other retailers are supporting their green drive to win the good will of the municipalities and the consumers……Lastly: The consumers in Ontario, Canada are demanding better quality products and they are loosing customers as most of them started shopping online.

    http://hk.nielsen.com/documents/Q12010OnlineShoppingTrendsReport.pdf

    ।। नमो भारतम् , नमो संस्कृतम् ।।
    .

  • 66. AAryan said:

    I am pasting my comment in response to the unemployment and poverty, in the terms of proving the social minimum.
    http://www.facebook.com/#!/bilandani/posts/200384470042061

    If the cards are played well then it can be blessing in disguise. The govt. need to revise policies to improve the socio-economic structure so the citizens can take the maximum benefit of this move.
    The minimum should be
    1. Provide educational support to the local small and medium business owners to compete internationally.
    2. Subsidize small and medium business owners, initially for 3 years, seeking in importing or developing high end technology and mandatory participation in giving back to educational institutions.
    3. Revise and incorporate employment insurance policies, social assistance and continuing educational support.
    4. Raise the standards of the vocational institutions and mandatory internship for the vocational students.
    5. The Baccalaureates and higher graduates entering into work force need to be licensed.

    ।। नमो भारतम् , नमो संस्कृतम् ।।

  • 67. Hitesh Rangra said:

    For a long time there were efforts for FDI in the retail sector so that the trader can reap the benefit of FDI. Retail trade contributes around 10-11% of India’s GDP and currently employs over 4 crores of people. Recently, a great debate has cropped up against the government plans for FDI in the Indian retail sector. FDI in retail is fundamentally different from that in manufacturing. FDI in manufacturing basically enhances the productive employment in most cases; but FDI in retail trade may create job losses and displacement of traditional supply chain. One of the main features of rural India is disguised unemployment. Farmers, evicted from the agricultural sector, engage in small retail trades for livelihood. The main fear of FDI in retail trade is that it will certainly disrupt the livelihood of the poor people engaged in this trade. The opening of big markets or foreign-sponsored departmental outlets will not necessarily absorb them; rather they may try to establish the monopoly power in the country. However, so many positive factors are also there in favour of FDI in Indian retail service.
    So dear try think in every one prospective.

  • 68. Hitesh Rangra said:

    Can we read first about this research paper??

    http://www2.econ.iastate.edu/faculty/stone/10yrstudy.pdf

    Regards
    Hitesh Kumar

  • 69. Hitesh Rangra said:

    S Gurumurthy on FDI :-
    Noted corporate adviser and national co-convener of the Swadeshi Jagran Manch (SJM) S Gurumurthy has said that allowing Foreign Direct Investment (FDI) in the retail sector will be dangerous to the very existence of over 1.2 crore retail traders in the country.

    Inaugurating the state convention against FDI in retail sector organised under the aegis of the SJM, he said that India was an entrepreneur-driven country. He said the advocates of FDI do not understand that they were destroying the very existence of the 1.2 crore retailers and thereby pushing around 8 crore people depending on them into peril.

    ‘’They cannot provide employment to 1/120 of the strength of the self-employed people. Retailing is not just self- employment but self-learning,’’ he said.

    He pointed out that 92 percent of the total population are self-employed.

    He said that in China, which has a regimented economy, 53 per cent of the total population were engaged in agriculture while in India 65 per cent of people were engaged in agriculture. The majority of them are small farmers and contribute the major chunk of the agricultural production. He said if retailers were pushed to hardship the very development zeal of the country would be affected.

    The ordinary ignorant people cannot understand the hidden dangers involved.He criticised the media for not reflecting the sentiments of the people as the media was going after the advertisements from corporates.

    It is high time for the nationalists to raise the awareness level of people and agitate against subjugation and enslavement of the country, he said.

    Kerala Vyapari Vyavasayi Ekopana Samithi patron Alex M Chacko and state vice-president Peringamala Ramachandran spoke. M Gopal presided. K V Rajendran welcomed the gathering.

    Regards

    Hitesh Kumar

  • 70. Hitesh Rangra said:

    Please have a look at it.

    Wal-Mart and County-Wide Poverty

    http://cecd.aers.psu.edu/pubs/PovertyResearchWM.pdf

    Regards
    Hitesh Rangra

  • 71. B Shantanu (author) said:

    Excerpt from Atanu Dey’s recent post:
    The fun facts.

    1. Retail is an essential service in any economy.

    2. Organized retail is a good thing in any sufficiently large economy.

    3. Organized retail requires investment, in terms of capital and human resources.

    4. Foreign investment augments domestic investments and is good for the economy.

    5. India needs an efficient retail sector.

    6. India’s domestic resources are insufficient for creating an efficient retail sector.

    Therefore inflow of foreign investments in retail is good.

    But what about the millions of small kirana store keepers? Some of those stores will no longer be viable. Some, not all. Some of the people currently in the unorganized retail sector will find employment in the organized retail sector. Fewer people will be needed for the same volume of retail — which is another way of saying that there will be labor efficiency gains. Increased efficiency also means higher wages in the retail sector. That is good news. But wait, there’s more.

    A growing economy implies that the retail sector will also grow. Given sufficient growth, it could even be that the number employed in retail grows even with increased efficiency in retail.

    It is a mistake to consider the economy as a static game. Economies are dynamic structures and it is possible to have changes that benefit some without hurting others. In other words, Pareto improvements are possible.

    An example of this is the telecom sector. At one time, it was feared by some that increasing the efficiency of the sector will lead to unemployment among the current labor force. As it turned out, those fears were unfounded, since the growth in the economy, and therefore of the sector, saw an increase in employment together with higher wages. Not just that, it also led to cost decreases which are reflected in the low prices of telecom services we all enjoy.

  • 72. Patriot said:

    @ Malavika:

    “I am an engineer and a CFP. ”

    Really, what is a CFP? I have heard of CPAs and CFAs, but CFPs?

    And, you are really clutching at straws here:

    ““And, you have not provided an answer to my question about household trade deficits ”

    You did not answer which trade theory says House hold is a sovereign.

    And you did not answer any of the questions I raised.”

    You probably have never read Hayek or George Friedman, or you would understand the starting point: That the Individual is Sovereign, not the nation.

    But, leave that aside – it requires a huge mind shift for socialist types to get their minds around the above concept.

    Let us start with this assumption: Your household is not sovereign, but it has an economy, which interacts with the external world – how do you manage your trade deficits?

    Explain that, and then I will move on to explaining how India will manage.

    And, I will come back to you on Warren Buffet – I am collating a whole bunch of articles that you should read, and not just one essay, which you quote out of context.

  • 73. Patriot said:

    “We think different and ignore your suggestions.”

    Well said, Malavika. When logic does not provide an answer, ignore and keep praying to our (false) socialistic and communist idols.

  • 74. Patriot said:

    And, all those who are against FDI in Retail:

    I am still waiting for an answer to my question in the first post: Name one industry that foreigners dominate in India, after that industry has been opened up to FDI.

  • 75. B Shantanu (author) said:

    Dear All: Apologies..A large number of comments were stuck in the moderation queue since today morning. I have cleared all of the. Thanks for your patience and support…
    I hope to respond to some of the points raised tomorrow…(tied up preparing for a talk on history to a group of students later today).

  • 76. Patriot said:

    Game over, folks – FDI in Retail is a reality, whatever be the next round of discussions in Parliament.

    Mamata (oh, Mamata!) Bannerjee has said that she will neither back nor oppose FDI in retail. With that, the govt is safe – the DMK are, at best, only going to be able to sulk now that Mamata has decamped, given the Jaya wolf at their doors!

    And, FDI in Retail is an executive decision – does not need a bill to be passed in Parliament. And, the Congress had already indicated that, like the Nuclear Deal with the Americans, this one was non-negotiable too. It is interesting to see that the backroom boys of Congress have now pulled off a second reform (would be counted as one of top-5 of the last 20 years), after not giving way on the first one – complete deregulation of petrol prices.

    Meanwhile, the BJP flounders like a ship without rudder – what is wrong with these blokes? They proposed FDI in retail in 2002. And, it was part of their electoral manifesto. And, how much does anyone want to bet, the BJP/NDA ruled states, Gujarat, MP, Uttarakhand, Bihar will be the first to allow foreign retailers?

    This is transformative day for India.

    Cheers

  • 77. Ajay said:

    Very good attempt at selling FDI in retail.

    Let’s take Lays potato chips example…. Potato from farmers still bought @ Rs. 2 per KG, Chips sold @ Rs. 20 per 60 Gms which means same potato is being sold at Rs. 333 per KG after changing from potato to chips.
    Some Questions here:
    Has it helped farmer?
    Has it helped consumer?
    Is there new technology required in this field?
    Who gets the difference between 2 & 333 except some money that is actually spent in changing from potato to chips?
    In your example at top Rs. 38 are there in India only but here about 300 are going to foreign company?

    The point I’m trying to make is that a foreign players are not keen to enter in India to pass on benefit to India, its consumers or farmers but what they are looking at is high profits they can earn here by manipulating system. They know our saving rates, our growth in spendings and ‘onorganised’ is their biggest competitor.

    Media will always support FDI in retail because Kirana store do not give any Ad to them and Walmart etc. will.

    One last point ‘benefit to consumer’ could equally be played when Gandhi ji was calling for swadeshi and India was lightinh Holi of Foreign Clothes.

  • 78. Anonymous said:

    Cheers for FDI..

    For non belivers in FDI in Retail ..

    Just dont go to marts… dont save you money

    dont go to local vendors who will buy from marts

    check for all the FDIs in India and stop going to any foreigners who have entered through FDI

    You are so much in number that these marts will have problem to start with . if you really do what you say …or what you want to force upon others…

    rest even if you are millions and i am single , it does not give you right to disallow something for me … if you dont have that right then you also cant approach anyone(govt) to do that job for you

    cheers again for FDI in retails .. as supratm said .. transformative day india

  • 79. Jayant said:

    @Patriot

    “And, all those who are against FDI in Retail:

    I am still waiting for an answer to my question in the first post: Name one industry that foreigners dominate in India, after that industry has been opened up to FDI.”

    Carbonated soft drinks market in India is dominated by Pepsi and Coca Cola.(btw, I am not against FDI in retail)

  • 80. Vijay Mohan said:

    @ Ajay

    Everyone works for profit ..
    they will also work for profit.. nothing new

    Our Govt sector work for no profit .. you know the result..

    Who stopped you from making chips ??? make and sell at prices that are accepted by consumer …

    one more thing .. profit is good .. “SHUBH LAABH” and now rethink …all your concepts..

    Regards,
    Vijay Mohan

  • 81. sujatha said:

    I stay in sharjah, a place full of shops, both big and small and as far as i can see,there seems to be place for everybody.Carrefour is just a 10 min drive from my place,but even closer there are innumerable small stores.As a housewife,both carrefour and the small groceries have their unique advantages.Carrefour has some items which are not available with the local groceries but the local groceries stock all the ordinary items we use on a daily basis.Hence,on a daily basis,I buy the daily essentials from the local grocery as it is within walkable distance, offers prompt home delivery and personalised service and has very long working hours,none of which Carrefour offers.Also,it doesnt make sense to go all the way to Carrefour in the traffic,search for a place to park,walk all the way into the huge store,stand in a queue to pay and sometimes wait for the security to check ur bag,and drive back thru the traffic,all for a bottle of milk or a kg of tomatoes.I could buy stuff in bulk from Carrefour and store but that too doesnt make sense when i can get fresh stuff everyday from my local shop.This logic is going to be all the more sensible in India, considering that powercuts make it difficult to store fresh food and also many people do not have a vehicle or even if they do,the price of petrol,traffic chaos and bad roads might make it unattractive to drive all the way to a supermarket.
    I do visit Carrefour once or twice a month to buy things which arent available in the local store.This is how all my neighbours and friends seem to be doing.As a result, you can see that both the big and small stores are co existing.Hence all this hysterical fear about small stores closing down seems unfounded.
    The comparisons with UK or US are also not very valid.First of all,everybody there owns one vehicle atleast.Traffic and roads are not big problems so driving up to any place is not an issue.There are no powercuts so storing fresh food is possible.Also,they eat a lot of ready to eat stuff which can be bought in bulk and stored.Most people,both men and women work so buying in bulk during weekends and storing makes more sense.Also,I got the feeling that the locals do not want to put in the same kind of effort which the Indian small grocers put in, e.g working long hours, home delivery etc.Naturally,they can’t compete.In fact in the UK,almost all shops close by around 5 except the Indian or Sri Lankan owned small shops which are open till late at night.
    Considering that in India,the entry of foreign supermarkets is only on a limited scale(unlike in many other countries whose examples have been cited),it seems to be a case of gross exaggeration to say that millions of jobs will be lost.( the govt does also say that their model is unique and has checks and balances based on studies from other countries – i dont know how valid they are but given it is being started on a limited scale,it should be given a try)
    Also,nobody seemed to be too worried about the pathetic state of our farmers – all the sympathy seems to be with the kirana shops.If at all there is any sympathy for the farmers,it is claims like predatory pricing by the big giants etc -never mind that they are presently,being fleeced to death almost, by (Indian)middlemen.Since anyway there seems to be very little hope for the poor farmers at present,lets give big retailers a chance and see if they can improve the state of the farmers, a little atleast(doubt if things can get worse for them than it is now-it already is at tipping point).Interesting and tragic too,that none of the critics have created the same kind of ruckus or patriotism? in protest against the dismal state of the farmers and poor in general.

  • 82. sriram said:

    I am no economist and came to this thread without any fixed views on FDI in retail. I have to say that I find the pro-FDI arguments to be more compelling and that, coupled with the inability of foreign companies to really dominate Indian industries, suggests that the outcome will not be as negative as the naysayers make it out to be. Perhaps the really tiny grocery store just 5 minutes walk from the house may be in danger, but is it not possible that instead of imagining the walmart-style extreme there may be a place for something in-between (15 mins walk, but mini-supermarket) that offers more choice?

    supratim: so how long have you been in mumbai?

  • 83. sudhav said:

    The pertinent question that arises is why cannot the Indians in India create and multiply their own local businesses and brand names to do what Walmart et al are doing? There are few ‘chain stores’ in India on a local level, and even fewer on a national or international level. Surely it is within the realms of possibility to create ‘chain stores’ and ‘supermarkets’ within a defined workable time frame. What is the sticking point?
    There will always be middlemen, perhaps fewer in the future. What makes people think that large supermarkets will be generous to farmers? The big supermarkets have the capacity to drive prices down when purchasing from the farmer, (and probably, therby to the customer). This FDI threat must become the impetus for local business to diversify, multiply and to supersize.
    Finally,I believe to fully deliver the above, there needs to be further rapid and vigorous improvement in the infrastructure, FDI or no FDI.

  • 84. Arjun said:

    Nicely explained Shantanu , I think indians need to get out of the east india phobia and see the benefits of wallmart and tescos ect in india because even in indian areas around london one can clearly see how indian businesses are flourishing because they have reinvented themselves to take on all the major supermarkets around them.And this is what will happpen in india as well because the indian ethos is like that where it will copy the idea and then reinvent itself giving walmart a run for its money.Some years back i remember there was a big issue over KFC/macs coming to india but it found it coulndt compete with indian food saying that it cant even compete with indian food in the west itself but least everyone gets a choice,With the know how and technology that these companies will bring into india will only turn into india’s advantage i think in the end.So its not surprising that even East India Company is own by an indian now.. Anyway thats my thoughts on this…

  • 85. B Shantanu (author) said:

    Some more links and excerpts…
    From an article in The Pioneer by Sh Arun Jaitley: Over four crore Indians are self-employed in retail trade. Retail trade thus constitutes one of the largest providers of jobs in India. Structured international trade will displace jobs existing in present retail sector. This harsh reality has been experienced even in developed economies. It is for this reason that the big towns even in the USA do not allow stores like Wal-Mart for fear of displacing corner shops.

    A huge setback will also be witnessed in Indian manufacturing sector. Our manufacturing sector reforms have still not taken place. Our interest rates are very high; infrastructure is poor; utilities like electricity are costly; and trade facilitations are poor. Unless we can reform these areas, we cannot reach the target of low-cost manufacturing like China. The consumers will buy products, which are cheaper and not costlier. Thus, international retail chains, controlled by foreign corporation will source products which are cheapest in the world. The prospects of their selling the consumer goods, which are sourced from China and other low-cost economies is most likely. Indians will thus be serviced by US and EU companies selling Chinese products. This is going to lead to fall even in manufacturing jobs. There will be displacement in retail sector and job losses in the manufacturing sector.

    and Tavleen Singh on Hysteria over FDI
    Beneath the cacophony, there have been some sensible voices. They point out that our poorest farmers will benefit most from the arrival of international retail chains because with Walmart and Carrefour, will come the cold storages, rural roads and refrigerated transport systems that so far do not exist. In their absence, half of the vegetables and fruit that Indian farmers produce, rot before they can get to a market. If farmers are enabled to find new markets, this criminal waste of farm produce will stop.

    There will be benefits in urban India as well. Consumers will get more choices at better prices and those shopkeepers who closed shop last week in protest against FDI will be forced to improve their services. It has been the experience of other countries that small shops do not go out of business because of the likes of Walmart. They evolve into the sort of specialised shops that people like me prefer infinitely to supermarkets. In American cities where there is a Walmart around every corner, there usually exist small shops that rarely lose their customers.

    So the hysterical response we saw last week is misplaced and absurd especially from what is supposedly our only ‘rightist’ political party. If proof were needed that the Bharatiya Janata Party has truly lost the plot, it has come in the reactions of its senior leaders to the FDI decision.

  • 86. B Shantanu (author) said:

    Dear All: Thanks for a vigorous and enlightening debate…Truly useful in terms of sharing different perspectives and salient points.
    Here is my summary of the situation (as I see it). Be aware that my knowledge of economics is basic *and* some of the points mentioned below do not have verifiable data to support the stance. Happy to be corrected and challenged on these points..

    Here are some reasons to welcome FDI in Retail:
    1] It will almost certainly benefit consumers (if nothing else, by giving them choice)
    2] It is very likely to greatly benefit the poorest of the farmers who are at the complete mercy of the mandi middlemen (also read Tavleen Singh on “Hysteria over FDI”)
    3] It is almost certain that additional employment will be created and there will be significant investments by the large cos. in supply chains, storage etc
    4] The “profits” being eaten up by foreigners is a red-herring argument (in my opinion). By this logic no Indian co. should be allowed to take-over any foreign co. either (Think Tata Tetley, Arcelor Mittal, Land Rover, Jaguar and not least, the East India Co.!)
    5] There *may* be some impact on balance of payments – how much and for how long is not clear to me.
    6] The fear of MNCs taking over retail are hugely exaggerated (think McDonalds. KFC, other foreign brands)

    That said, on the flip side
    1] There is very likely to be a significant short-term dislocation of jobs
    2] FDI in Retail as a stand-alone measure (without doing the things mentioned below) *may* lead to more harm than good and could lead to massive social backlash.

    To fully leverage the advantages of FDI in Retail, the government should
    1] Consider massive investments in infrastructure development
    2] Encourage creation of jobs & development of skills in manufacturing by training and re-tooling the workforce.
    3] Ensure level-playing fields and be open to the possibility of dumping by foreign cos.
    4] Take a strong stand against agricultural subsidies which prevents exports of food/grains from countries like India e.g. http://en.wikipedia.org/wiki/Agricultural_subsidy
    5] Implement a package of measures specifially targetted at improving the situation in agriculture (commodity pricing, procurement, rural infrastructure, supply chains, etc etc).
    6] Push for reforms in international trade and enoucrage movement of people along with movement of goods in international fora.
    7] Educate the public on the positive effects and also the steps taken to reduce the short-term pain and manage during the transition period.

    In parting, we do need more discussion and (informed) debate rather than rhetoric. But I continue to believe this is a good measure – although the timing is suspect and there hardly seems to have been any effort to build a broad consensus before-hand. Thoughts/comments welcome. Thanks.

    P.S. Pl also read: “Kaam Aadmi” POlitics – Can It Work?

  • 87. AAryan said:

    @ Shantanu: Good summary. I was just talking off line to some on-the-ground small retail entrepreneurs, and the common concern is hope Govt. handles this FDI properly, else it will create more “handicaps”. (small retailers who came into this business by virtue of necessity due to the death of the main bread earner and/or college drop-outs due to financial circumstances).

    ।। नमो भारतम् , नमो संस्कृतम् ।।

  • 88. Malavika said:

    Meanwhile President Obama is encouraging American to buy from small shops and sets an example.

    “Promoting “Small Business Saturday”, the second annual event to help Main Street merchants in a tough U.S. economy, Obama visited a local bookstore with Malia, 13, and Sasha, 10, in the diverse, upscale Du Pont Circle area of downtown Washington.

    “This is Small Business Saturday so we’re out here supporting small businesses,” said Obama, standing next to Malia who was hugging an armful of books to her chest.”

    http://www.reuters.com/article/2011/11/26/us-obama-business-idUSTRE7AP0N220111126

  • 89. Malavika said:

    B.t.w Americans are being encouraged to buy in local farmers market. Local schools are taking children to farmers markets. And money spent in Farmers markets by Americans in increasing at a higher rate than the grocery sales at supermarkets/big box retailers.

    @ Shantanu,

    ” It is very likely to greatly benefit the poorest of the farmers who are at the complete mercy of the mandi middlemen (also read Tavleen Singh on “Hysteria over FDI”)”

    No, it is very unlikely that big box retailers increase farmers income. Read my previous links which clearly showed that for every dollar spent by consumer a farmer got 70 cents in the 1950′s. Now it is just 4 cents. Another example is the experience of British dairy producers.

    Tavleen makes lots of claims without any evidence.

    A better option is to have farmers markets in all urban areas on Govt land. CB Naidu of TDP did exactly that and they are a big hit in Hyd. So, these farmers markets are loading their veggies in trucks and sell their produce in front of gated communities!

    ” It is almost certain that additional employment will be created and there will be significant investments by the large cos. in supply chains, storage etc”

    Once Walmart imports apparel, shoes etc from China it is not just traders who will be unemployed. The weavers, carpenters, manufacturers will be deeply in trouble. And I am thinking farmers suicides are terrible enough.

    Yes, India badly needs cold storage. Instead of penalizing Indian entrepreneurs with 15%(18% in finance companies) interest rates why not give lower interest rates for Indians to get into the market of cold storage. We have no problem giving free land for real estate companies masquerading as IT companies, but have a problem giving reasonable interest loans for entrepreneurs willing to invest in cold storage.

  • 90. B Shantanu (author) said:

    Malvika: Thanks for continuing the debate…will respond later…
    In the meantime, here is an interesting article from NYT on how a local community got together to create its own superstore..
    Do read: A Town Creates Its Own Department Store which suggests to me that the decision re. entry of a retailer in a particular city (or not) is best left to local communities..

  • 91. B Shantanu (author) said:

    I was not aware of 2 important points proposed in the bill:
    1] The retailer will invest a minimum of 50% of its investment (as per policy guideline) in cold storage, packaging, sorting and transportation facilities.

    2] 30% sourcing is mandatory from small enterprises (according to the proposals)

    I have not seen the actual draft but was made aware of these points via the website of Jago Party.
    A brief excerpt below:
    The same fear (of small shopkeepers loosing business) was expressed when domestic multi-brand stores like Big Bazar, Shoppers Stop, Reliance Fresh, Westside, Hypercity etc. had started. But there was little impact on small kirana stores. This is because overall retail business is growing very fast due to rising population and income in cities. There is likely to be at least 13% growth in trade in next 10 years. Besides, these local kirana stores provide home delivery, credit and proximity so they will always be liked by a number of households.

    The following data proves the point:
    In Delhi, over 60 multi-brand retail stores were opened by domestic companies during the last 10 years, which is maximum in a city in India and yet the number of other shops have also been increasing. In the year 1998, there were 2.31 lakh shops employing 5.35 lakh people. In 2011, the number of shops increased to 4 lakh employing 11 lakh people.

    The same type of hue and cry (re. loss of jobs) had been made at the time of introduction of computers, 1991 liberalizations and joining WTO. People were arguing that these measures will cause massive unemployment or destruction of local industries etc. But nothing of that sort happened. On the contrary, Indian industries became more competitive and economy grew faster.

    There was a time when people were arguing that entry of McDonald, Pizza Hut, KFC etc. will destroy Indian fast food eateries. But they were proved wrong. Our brands like Haldiram, Bikanerwala, Nirulas, Nathus, Udupi, Sagar etc are still flourishing.

    There was same type of opposition at the time of entry of foreign banks, foreign cars, foreign TVs, foreign fridges etc. But, as we have seen, both Indian and foreign brands in all sectors are co-existing and both are flourishing.

    FDI has already been operating in sectors like telecom, insurance, power etc., but there has been no problem there. So why would there be any problem in trade?

  • 92. Ravindra said:

    Dear friends,
    This is an interesting debate going on here. Very nice to see arguments and counter arguments from participants. I am a zero in economics, being a SW technical guy, but do understand it from a 30000 ft.

    Meanwhile, an interesting article by S.Gurumurthy on whether we need a “Market economy”, or a “Market Society”? Do read it.

    http://expressbuzz.com/opinion/columnists/market-economy-or-market-society/340201.html

  • 94. Patriot said:

    @ Ajay – why not ask the potato farmers in Punjab and Gujarat and Maharashtra what they think of Lays and their sourcing? All reports and first hand information I have seen/heard claim that they are extremely pleased with Lays.

    @ Jayant – Well done! Only you bothered to answer the question, while those opposed to FDI went around like Chicken Little. Yes, foreign companies dominate the soft drinks market – has that been a disaster for India, compared to when we had ThumsUp, Campa, etc? An interesting anecdote here: Thums Up had such a loyal CONSUMER following, that both Coke and Pepsi could not reach the number 1 spot as long as it was independent. Eventually, Coke bought it out along with Limca and Gold Spot. It then put the brand into cold storage, and put no ad dollars behind it. Yet, so strong was the brand recall that Thums Up continued to have a 10-12% market share among Colas without any advertising support! Finally, coke brought it back and now supports it extensively with the “taste the thunder” campaign. Today, Pepsi is no.1, but Thumps Up is still no.3 and together with Coke, it sells more cola than Pepsi, standalone.

    And, so why this fear of FDI among so many people, I wonder?

    @ Sriram – Been based in Mumbai, practically all my life. Why do you ask?

    @ Shantanu (post no 91) – exactly right – the conditions for FDI in Retail includes conditions for setting up retail logistics infrastructure. Of course, these folks would have had to do it in any case, given the woeful state of our infrastructure. But, the policy is mandatory.

    And, you bring the other issue out very well – something that I was trying with my first post as well – fears of big-box retail in India have been proven to be conclusively FALSE. IF Big Bazaar, Spencers, Reliance, etc can all exist, and so can my local kirana stores (who incidentally makes the same or higher profit now, than he was making earlier – supply side economics, take a bow), then the current fear of FDI in Retail is again nothing but fear mongering by vested interests.

    Cheers

  • 95. Patriot said:

    @ Hitesh -

    Thanks for the link – all models are welcome to compete. If the Farmers’ mall of Gujarat is more efficient and more competitive for the Consumer, it will be more successful.

    BTW, Gujarat and Punjab were the only major states that replied that they have no objection to FDI in Retail, indeed that they welcome organised retail to their states. This was in response to a survey questionnaire that had been sent to all the states by the centre. AP, Kar, Mah, UP, MP were yet to reply, when Indian Express published the results. Interestingly, Kerala, Bengal and Chattisgarh replied saying that all big Retail should be shut down, including existing ones – at least, they are consistent in their thought process.

    Coming back to Farmer’s Mall, Hitesh, why did they suddenly hit on this idea in 2009 and not earlier? Say, in 1999? Did Consumers not appreciate a clean, competitive and efficient shopping environment then? What do you think?

    Cheers

  • 96. Patriot said:

    @ Ravindra -

    Gurmurthy’s article has a good start about our retail construct, but then degenerates into assertions.

    He calls out Anand Sharma on his maths, and his claims of employment that will be generated – but, then he goes on to dismiss him with a flat assertion “employment claims are bogus”. At least Anand Sharma put together some math to support his thesis, where is Gurumurthy’s thesis?

    And, the first commentator gets it right, I think – if this was BJP’s policy, then Gurumurthy would make the same assertions in reverse!

    Finally, I think Vijay encapsulated the whole FDI debate quite well, when it comes to your local “pheriwala” or “kirana” – Savings/earnings vs employment. Those choosing employment must necessarily stop doing their own laundry, cooking at home or anything else that deprives another Indian of gainful employment!

    At the heart of this debate is the Consumer – it is her money, it is up to her how she wants to spend it. Some like Nanda/Malavika may want to spend at their local shops, others may want to go to the hypermart. It is individual choice.

    And, no individual or politician has the right to say that I shall deny others this choice – they must follow my choice and my pattern. That is the key. As Indians, do we want more choice or less? And, do we want to decide these choices or are we willing to let the “do-gooders” decide them?

    Cheers

  • 97. Malavika said:

    @Santanu,
    “30% sourcing is mandatory from small enterprises (according to the proposals)”

    True, But this 30% can be from Chinese(foreign) small enterprises.Pranab was trying to drum up funds for NREGA and prop up the rupee which has lost nearly 18% this year.

    Doing so, implies we punish self employed (traders, weavers, artisans) to help freeloaders.NREGA is another name for leave no Congressi unemployed.

  • 98. Malavika said:

    @ Hitest,

    Excellent find. The key is to improve infrastructure so farmers can interact directly with consumers.

    “We do need mega malls in cities but not through Foreign Direct Investment but by the efforts of farmers themselves. We are going to provide the first example of this,” he added.”

    Absolutely true, this would be a win-win situation. A small scale example of this in Hyd regarding farmers markets is already very successful.

  • 99. Patriot said:

    Ah, the Luddites won yesterday – FDI in multi-brand Retail “suspended”. Jai ho, Bharat. May you remain in the eternal darkness of socialism.

    While CPM opposes FDI retail in Parliament, here is a ground level functionary talking about the positive impact of Metro for paddy (rice) farmers in Burdhaman, Bengal:

    “At a time when farmers are committing suicide in Burdwan over distress sale of paddy, those tied with Metro Cash and Carry have got a good price”

    http://epaper.indianexpress.com/c/6451

  • 100. RC said:

    This fiasco shows that there is a reason why India is poor (desperately poor in fact) and that reason is not going away anytime soon.

    Like Tavleen Singh’s Indian Express column lamented There are times when India deserves to be a poor country

    Even regular folks who were not going to be adversely affected in anyway with FDI in retail were generally opposed to it. It boggles the mind.

  • 101. sudhav said:

    I broadly agree with Malavika.The arguments for and against are not aligned on the same lines as socialism or communism. All that FDI could offer, can be done inhouse by improving infrastructure and inmproved coldstorage etc. The point is that the large multinationals have the potential to take over the market in a big way, and that is why there is such heated debate and polarisation. The small retailer and the aam admi would be almost powerless to express or act in any meaningful way. Of course the West has gone the way of the MNC and the big banks.. and look where they have ended up..largely as a result of poor regulation. And we all know about the inability of Indians to regulate anything properly.. and I don’t mean to be condescending.
    At the moment the low interest rates (and other factors)in the West are stifling the developing economies, and the more stake they have anywhere the more they, rather than the indigenous goverment, will be in control.

  • 102. Patriot said:

    @ Sudhav, you say:

    “All that FDI could offer, can be done inhouse by improving infrastructure and inmproved coldstorage etc. ”

    Could you kindly explain as to why this has not happened then? Why have Indian Big Box retailers failed in doing the above? Or any other Indian group that you would care to name?

    “At the moment the low interest rates (and other factors)in the West are stifling the developing economies, and the more stake they have anywhere the more they, rather than the indigenous goverment, will be in control.”

    Really, you believe this? That is why China is growing at 9%+ while India has been growing at 7%+? Developing economies are being stifled?
    And, Pepsi and Coke control the Govt of India? That is your well considered view on FDI?

    No wonder, India will remain in the darkness of poverty, caused by socialism.

  • 103. Ravindra said:

    @Patriot, @Shantanu,

    All is not well with the anti-national GOI. If this report is true, the corrupt GOI might have already taken its share of bribe from Wallmart (http://janamejayan.wordpress.com/2011/12/09/exposing-the-sleaze-lies-and-perfidy-walmart-spent-a-fortune-lobbying-for-india-entry-gopal-agarwal/).

    Sudhav’s quote…
    “All that FDI could offer, can be done inhouse by improving infrastructure and inmproved coldstorage etc. ”

    Yes it it true. You ask of the reason, then it is very evident becoz of corrupt and anti-national GOI.

    To add more, if this ANGOI is pushing for such an FDI venture, definitely there is one more scam lurking. My counter question to you, “Do you think, the Indian masses (not the ANGOI) benefit from these international retailers?”

    As for China, it knows how and when to control the foreign traders, as it did in the case of google. Also, what is the guarantee that China’s growth was due to FDI? Do you have figures n facts for this?

    thankx…

  • 104. Malavika said:

    TAvleen said:

    “It has been the experience of other countries that small shops do not go out of business because of the likes of Walmart. They evolve into the sort of specialised shops that people like me prefer infinitely to supermarkets. In American cities where there is a Walmart around every corner, there usually exist small shops that rarely lose their customers.”

    Looks like Tavleen is from planet Walmart. Why columnists resort to falsehood and outright distortions is anybody’s guess. Honestly Walmarts are behemoths located in the outskirts and are not corner stores. And Walmart is known more for creating ghost downtowns.

    Wal-Mart certainly produces a reverse wealth effect. Just walk through any community downtown with its empty or boarded-up stores, to see the workings of the Wal-Mart effect.

    A Detailed study conducted by Kenneth E. Stone1, Georgeanne Artz2
    Albert Myles34 professors of Iowa state clearly confirmed negative tax revenue, job impact of Walmart.

    “many times, the net increases are minimal as the new big box stores merely capture sales from existing businesses in the area. A reduction of sales for existing businesses usually translates into fewer employees, less sales tax and lower property tax collections from the local stores.”
    http://www2.econ.iastate.edu/faculty/stone/mssupercenterstudy.pdf

    And the worst part is that the jobs replaced are higher paying jobs than paid by Walmart. And Americans are waking up and are restricting or not allowing Walmarts, several Californian cities and other East Coast cities passed ordinances prohibiting any new retail business from being over a certain size. Whose primary objective seems to stop a supercenter type stores from entering the market.

    Indian Luddites refuse to see and still shilling for Walmart.

    I used to respect Tavleen.

  • 105. sudhav said:

    @Patriot.
    Don’t be ridiculous.Of course Pepsi and Coke do not control the GOI, but the big MNC would of course have some power? The more MNCs in a country, the more power they would wield.
    There are economists, in the West, who are writing precisely that one of the reasons the West is keeping low interest rates is the reason I have stated. If growth is 7-9% in Chin and India, where is inflation heading??
    I am not an economist, but the artificially low interest rates in the West would not be serving the developing economies.

  • 106. sudhav said:

    @ Patriot
    Why have the Big Box retailers not improved infrastructure and coldstorage etc.? Indeed.One may well ask.
    It is not the remit of retailers to improve infrastructure- that is the job of the GOI and its parts. Why is the GOI so inefficient? Your guess is as good as mine.
    The coldstorage and other improvements may happen quicker now that the retailers realise that there may be a very real threat to their livelihood. Please be clear that I am not in favour of protectionism.

  • 107. Malavika said:

    @Ravindra,

    “As for China, it knows how and when to control the foreign traders, as it did in the case of google. Also, what is the guarantee that China’s growth was due to FDI? Do you have figures n facts for this?

    China allowed FDI in retail in 1996/97. By then it has become a manufacturing powerhouse thanks to Walmart and others forcing manufacturers into relocating their factories to China. It is upto uber consumerist here to prove that China grew through FDI in retail in 70′s and 80′s upto 1996. Well.. there was no FDI till 97.

    Then, since 97 he/she needs to show rate of growth of manufacturing, retail, services etc. Then we will know FDI’s contribution to China’s growth since 1997. Till then FDI’s contribution to China’s growth was zilch.

  • 108. Patriot said:

    @ Sudhav -

    “There are economists, in the West, who are writing precisely that one of the reasons the West is keeping low interest rates is the reason I have stated. If growth is 7-9% in Chin and India, where is inflation heading??”

    Links please to western economists saying that low interest rates in the Developed Countries STIFLE growth in the developing countries?

    And, what is your point about inflation? India’s inflation is structural in nature – I can explain to you, off line, why this is the case.

    “I am not an economist, but the artificially low interest rates in the West would not be serving the developing economies.”

    See, this is a problem – either you have to read up on economics, so that you can intelligently comment on it, or else you have to abstain from making an economics comment. I understand that you are passionately concerned about India – but, policy making is an involved task, and fear-mongering detracts from it.

    I have laid down a challenge – please show me MNCs that have harmed India in the past 20 years, post liberalisation or please show me how INDIAN big box retailers have harmed Indians – facts are required here, not emotions.

    “It is not the remit of retailers to improve infrastructure- that is the job of the GOI and its parts. Why is the GOI so inefficient? Your guess is as good as mine.”

    No, it is NOT the job of the government of India to build cold chains or other infrastructure or run airlines or hotels or even schools for that matter. All govts (not just India’s, although India’s govt is especially poor) are necessarily inefficient, because govt bureaucrats have no incentive in doing a “better” job. You have to create the right incentive structure for anything to work properly and effectively – now, I don’t know where you work – but, suppose you were paid the same for doing an average job, and for a superlative job, although the latter took more time and effort, would you ever bother doing a superlative job?

    Same is true for governments and bureaucracies – we, Indians, need to recognise this fundamental fact. Incentives matter.

    “Please be clear that I am not in favour of protectionism.”

    Excellent, that is the one of the first steps for a nation to achieve prosperity and wealth.

    Cheers

  • 109. Patriot said:

    @ Ravindra:

    “All is not well with the anti-national GOI. If this report is true, the corrupt GOI might have already taken its share of bribe from Wallmart (http://janamejayan.wordpress.com/2011/12/09/exposing-the-sleaze-lies-and-perfidy-walmart-spent-a-fortune-lobbying-for-india-entry-gopal-agarwal/).”

    It could be true, it could be false – but, it does not detract from the fundamental question of FDI, as long as the policy is not selective.

    “Yes it it true. You ask of the reason, then it is very evident becoz of corrupt and anti-national GOI.

    To add more, if this ANGOI is pushing for such an FDI venture, definitely there is one more scam lurking. My counter question to you, “Do you think, the Indian masses (not the ANGOI) benefit from these international retailers?” ”

    Please provide evidence of your first statement – have you studied the APMC act and how that works? And, how that is designed to keep out corporations from “mandis” unless specifically exempted by a state government – and, how this policy is anti-farmer and anti-consumer in reality, rather than than pro-small retailer.

    All of India’s retailing policies, whether in clothes or food or groceries or even electronics, started off by being ANTI-PRODUCER and ANTI-CONSUMER. The only people these policies benefited in the past and still benefit today are the MIDDLEMEN, the brokers, the dalals. Of course, they are crying like pigs being bled, as they see their businesses being bankrupted – but, should you favour the middle man or the farmer and the consumer?

    And, yes, I do think that Indians will benefit from these MNC retailers – after all, Indians have benefited from Big Bazaar, Metro, Reliance and Spencers. Foreign retail would have to do EVEN BETTER than Indian retail to win customers – since, they are starting later.

    Read the link that I sent about Bharti-Walmart’s operations in Punjab – these are actual farmers and small retailers talking, not propangandists for dalals. The State of Punjab and the State of Gujarat both want more organised retail – both states are NDA ruled (so, hopefully the ANGOI argument of yours does not work) – WHY DO YOU THINK SO?

    Farmers selling to Metro are getting a good price in Bengal, while others are driven to suicide – why? What do you think the Left/socialists have to say to dispute this FACT?

  • 110. Patriot said:

    False propangadist view:
    Then, since 97 he/she needs to show rate of growth of manufacturing, retail, services etc. Then we will know FDI’s contribution to China’s growth since 1997. Till then FDI’s contribution to China’s growth was zilch.

    Reality:
    As a result of the active government promotion through various policy measures, FDI in China has grown rapidly since the 1978, especially in the 1990s. From early 1980s to late 1990s, contracted FDI inflow to China has grown from about US$ 1.5 billion a year to more than US$ 40 billion a year in 1999. During the same period, China’s actual use of FDI grows from about US$ 0.5 billion to more than US$ 40 billion a year.

    …..

    Its share in total annual investment in fixed assets grew from 3.8% in 1981 to its peak level of 12% in 1996. After the Asian financial crisis in 1997, FDI inflow fell and its contribution to fixed assets investment has also decreased to about 9% and 7% in 1998 and 1999, respectively.

    …….

    FDI and gross national product (GDP)
    From 1978 to 2000, China’s GDP grew by 9.5% annually on average from RMB 36 billion to RMB 882 billion (Table 8). GDP per capita also increase dramatically at an annual rate of 8.3% from RMB 379 to RMB 7,078. While some might question the accurateness of China’s statistics, few would doubt that China has indeed achieved impressive growth since late 1970s.

    FDI is an important element in China’s reform and economic growth. As shown in Table 1, FDI increase from a very level in the late 1970s to more than US$ 40 billion a year the in the late 1990s. FDI and FIEs formed an important element in China’s economic growth in both the national level as well as regional level. Table 9 presents data on China’s total investment and investment by FIEs as well as GDP growth in different provinces and cities. It shows that, between 1992 and 2000, regions where investment by FIEs is relatively more important tend to have higher GDP growth. There is no significant correlation between the ratio of a region’s total investment to its GDP and the region’s GDP growth.

    For coastal regions, investment by FIEs account for 14% of total investment and the average GDP growth between 1992 and 2000 is 12%. The region that demonstrated the highest GDP growth during the period is the three Southern coastal provinces with 20% investment coming from FIEs and 14% annual GDP growth. For inland regions on the other hand, the two figures are only 4% and 10%, respectively. In particular, the 9 western inland provinces have relatively the lowest rate in both FIEs’ investment (3%) and in GDP growth (9%).
    There is a positive correlation between investment by FIEs and GDP growth at both national level and provincial level. We might be inclined to say that FDI inflow benefits growth by inducing higher GDP growth. It is, however, possible that increasing FDI is a response to rising economic opportunities due to higher growth. Empirically, it is not easy to determine the causal relationship between FDI inflow and economic growth11. What we can safely say is that increasing FDI inflow has been an important part of China’s growth.

    …..

    Source: Hong Kong University, http://www.hiebs.hku.hk/working_paper_updates/pdf/wp1049.pdf

    ……

    This is actual research data, not propaganda.

  • 111. Patriot said:

    Thanks to the Socialists, whether in the government or the opposition, and the lack of progress on virtually any policy/liberalisation/restructuring matter since 2004, India now risks sinking back to its “Hindu rate of growth”.

    The new “Hindu rate of growth” would probably be 5.5-6%, and not the old 2.5-3.0% of the socialistic nirvana that prevailed, pre-1980s, when getting a phone line was a major achievement.

    But, not the minimum 7.5% that we require to ensure that more people find gainful employment than the number that enters the job market.

    But, why bother – we shall pridefully wallow in our ignorance and poverty, while holding up a battered flag of “swadeshi”.

    Here is a classic that anyone interested and invested in India’s progress must read:

    http://www.econlib.org/library/Essays/rdPncl1.html

  • 112. Patriot said:

    The point that I find most offensive about the anti-FDI in retail and anti-Big Box lobby:

    There is an implied assumption or conclusion by the ant-big box lobby – allow the big-box in, and small retailers will be affected or die because consumers will flock to these big box retailers.

    Therefore, the unsaid starting point is that THE AVERAGE INDIAN understands his/her value for money and believes that the Big Box provides the BEST value for money, and thus will flock to these stores. This will be his conscious choice.

    Therefore, we as the High Priests of Wisdom, so self-ordained, must prevent the Consumer in acting in his best interest. Or, in other words, we must PREVENT the Indian CITIZEN in acting in his best interest, and instead FORCE him to go for a sub-optimal choice, so that his money is wasted and the economy remains inefficient.

    This is the UNSAID, snobbish, condescending thought process behind all the do-gooders’ and activists’ view that Big Retail is harmful for you, the average, unintelligent, must-be-guided, uncouth commoner.

    This is for your information, so that, you, the average Indian citizen know where you stand with the Social Activists.

    Cheers

  • 113. sudhav said:

    @Patriot
    The bbc business website has a wealth of analysis on the economy of the UK and the interactions it has with the other countries of the world.
    http://www.bbc.co.uk/news/business-15817660
    I quote
    ‘China has artificially held its currency low against the dollar to drive exports and other countries such as the UK and US have tried to respond with low interest rates and QE to reverse the effects. This is the same basic problem as in Europe where Germany benefits from a lower exchange rate which drives their export.’ India’s currency has been in freefall in recent months and there may be further to go.There will be measurable effects on the economy- FDI debate aside.

  • 114. Patriot said:

    @ Sudhav,

    The BBC is a mainstream site – playing up to the fears and concerns of the public of the UK. Do they even have an economist?

    Why not try the Financial Times or the Economist instead – two truly incisive publications from the UK, when it comes to economics and trade. Why not read these instead and let me know if you find the same concerns.

    This is not to say that China is not a mercantilist economy – it is – but, your contention of low interest rates in UK harming Chinese growth is still not proven.

    Cheers

  • 115. Patriot said:

    @ Sudhav,

    Sorry, I commented before I read that particular link – your quotation is not even from the link that you provided?

    The BBC economics editor is, in fact, saying different things to what you are saying – she is saying that China’s unbridled growth has been a major cause of the global liquidity problem (very debatable) but still not what your seemed to be quoting.

    And, to say that QE is a response to China is simply puerile – that is why I wondered whether the BBC even had an economist.

    But, you misquoted.

    Cheers

  • 116. malavika said:

    @Patriot,
    “What we can safely say is that increasing FDI inflow has been an important part of China’s growth.”

    True. FDI in what? Certainly not in retail. You are intellectually dishonest.

    FDI in retail was allowed in China only in 1996-97.

  • 117. Patriot said:

    @ Malavika,

    Before calling others names – hold up a mirror to yourself.

    You said there was no FDI in China prior to 1997. Ref your comments above.

    I proved you wrong. China allowed FDI since 1978 and it enabled their GDP per capita to increase from 379 RMB in 1978 to over 7,000 in 1999 – that is an EIGHTEEN fold increase

    Now you say that there was no FDI in China retail prior to 1997 – so what? China’s growth has continued at 9% post 1997, off an ever increasing base. So, I would assume that FDI in retail has not detracted or slowed down China since 1998.

    NOW, If you could possibly explain to me how to strip off the effect of one FDI stream and analyse its impact on China, I would be glad do so. Maybe, as CFP, you know things, which I do not – I AM willing to learn. Go on …..

    I could call your intellect worse names, I reckon, but I do not fight unarmed people.

    Cheers

  • 118. Patriot said:

    Oh, BTW, breaking news – India’s IIP numbers for October is MINUS 5%.

    Jai ho.

  • 119. Patriot said:

    L&T Chairman, Mr A M Naik:

    “Mr Naik said that he expected a steep decline in capital goods space and government policies in particular have led to slowing growth in capital goods sector. Capital goods production — a barometer of investment in the economy — plunged 25.5 percent.

    Naik said, “I have been expecting it, doubtful that next year we will see even 6% GDP growth. I expect next 2 years to be slow for capital goods space.” “

  • 120. Malavika said:

    @Patriot,

    You are a liar or a terrible reader or both. That is the truth. I specifically said

    “China allowed FDI in retail in 1996/97. By then it has become a manufacturing powerhouse”

    Here is my repost of my earlier post #107

    107. Malavika said:

    @Ravindra,

    “As for China, it knows how and when to control the foreign traders, as it did in the case of google. Also, what is the guarantee that China’s growth was due to FDI? Do you have figures n facts for this?

    China allowed FDI in retail in 1996/97. By then it has become a manufacturing powerhouse thanks to Walmart and others forcing manufacturers into relocating their factories to China. It is upto uber consumerist here to prove that China grew through FDI in retail in 70′s and 80′s upto 1996. Well.. there was no FDI till 97.

    Then, since 97 he/she needs to show rate of growth of manufacturing, retail, services etc. Then we will know FDI’s contribution to China’s growth since 1997. Till then FDI’s contribution to China’s growth was zilch.

  • 121. Malavika said:

    Indian economy is in terrible shape. It will get worse if Rupee continues to depreciate as it is expected, because of fiscal deficit and high oil prices and wasteful expenditure like NREGA.

    And the above factors have nothing to do with FDI in retail.

    B.t.w I think India should roll out red carpet for companies like Intel, Motorola, Nokia etc if they want to invest(FDI) in a FAB. Reason being India does not have the expertise to make Hardware Chips and these FABs employ large number of people.

  • 122. B Shantanu (author) said:

    Malvika, Patriot, Sudha, Ravindra, RC and Hitesh: Thanks for the comments and thoughts…I am learning a huge amount here and this is becoming an excellent reference source (thanks to all of you).
    Below are my brief responses to some of the points that have been raised.

    **
    @Malvika (#89): The experience of US and British farmers with big retail is not comparable to India (in my understanding). The Indian farmer is so badly squeezed that there is almost certainly a short to mid-term gains if not permanent increases in income.
    Secondly the idea of local markets that you mention is good but it can co-exist with big retail, no? Let people have choice (a point Patriot mentioned at #96 too).

    and re. your comment at #97 re. 30% sourcing from Chinese(foreign) small enterprises, I seriously doubt it. And if true, it is simply a matter of adding the prefix “Indian” to small enterprises.

    @RC (#100): “Even regular folks who were not going to be adversely affected in anyway with FDI in retail were generally opposed to it. It boggles the mind.” Well said.

    @Sudha (#101): Re. “the large multinationals have the potential to take over the market in a big way“,similar arguments were used to throw out IBM and Coca Cola in the 70s. As for your fears, how come large mutlinationals have not been able to take over the software industry in India?

    @Ravindra (#103): The case for allowing FDI in retail should be examined independently of whether money exchanegd hands or not, don’t you think? Although I would not be surprised if it did (the timing is curious too but thats neither here nor there)

    @Malavika (#104): Can you give one reason why small stores must exist in downtown areas? Is there a good reason? If no one in the community wants them, they do need to disappear, right?

    But I agree with you on one point: Let the towns and the cities decide for themselves whether they want Wal-Marts or not. Why should this be dictated by the government in N Delhi (beyond allowing FDI In Retail)?

    @Patriot (#112): Well said!!
    There is an implied assumption or conclusion by the ant-big box lobby – allow the big-box in, and small retailers will be affected or die because consumers will flock to these big box retailers.
    Therefore, the unsaid starting point is that THE AVERAGE INDIAN understands his/her value for money and believes that the Big Box provides the BEST value for money, and thus will flock to these stores. This will be his conscious choice.
    Therefore, we as the High Priests of Wisdom, so self-ordained, must prevent the Consumer in acting in his best interest. Or, in other words, we must PREVENT the Indian CITIZEN in acting in his best interest, and instead FORCE him to go for a sub-optimal choice, so that his money is wasted and the economy remains inefficient.

    @Malavika (#121): Good point about the Rupee’s freefall..and the looming fiscal crisis. I think we are walking off a cliff while everyone pretends all is well.
    And I think we are all (Patriot included) aligned with you on the immense harm caused by dumb policies like NREGA. Thanks

  • 123. Ravindra said:

    dear shantanu,

    When money is exchanged between the ANGOI and these big multi-national corporates, I don’t think one can detach this issue with FDI retail. The point being that these MNC’s who have paid large sums to ANGOI would be least interested in (or let me say least effective) in tackling the middleman corruption problem, for which you seem to be projecting FDI as a kind of remedy.

    thanks,
    RV

  • 124. Ravindra said:

    It is just like one smaller dalaal being replaced by a bigger dalaal, who is more dangerous and cannot be punished even if [hypothetically] caught. So, your suggestion of FDI in retail is not only feasible but very dangerous to the economic integrity of the nation in the given instance. May be after a decade, assuming a nationalist oriented GOI comes into power (NOGOI) instead of ANGOI (Anti national GOI), it may serve the purpose you are envisioning.

  • 125. Patriot said:

    @ Malavika:

    And, you are probably a fool or a knave, or both. Or possibly worse.

    You misquote Bill Gross and Warren Buffet, entirely out of context, and without reference to their main body of work. You drop names like Jeremy Grantham and can not back it up with links.

    You quote studies from the 90′s of farmers in other nations, without making the effort to see whether their case and that of the Indian farmers is even comparable (I will give you a clue – land holdings and labour costs). I wonder if you even read the link I sent about REAL farmers talking about their experiences in India.

    You want to talk about trade, but can not discuss Ricardo or Smith.

    And, then I give you loads of Data on Chinese growth and FDI – you get stuck specifically on “FDI in retail” but can not explain how to separate and assess the impact of one specific stream of FDI. No, you just go on like a stuck record.

    And, finally, this is what I posted at #117:
    “Now you say that there was no FDI in China retail prior to 1997 – so what? China’s growth has continued at 9% post 1997, off an ever increasing base. So, I would assume that FDI in retail has not detracted or slowed down China since 1998.

    NOW, If you could possibly explain to me how to strip off the effect of one FDI stream and analyse its impact on China, I would be glad do so. Maybe, as CFP, you know things, which I do not – I AM willing to learn. Go on …..”

    No reply to this part either: After allowing FDI in Retail in 1997, China has continued to grow at 9-10%+ each year, till date.

    So, has FDI in retail harmed China? Helped or hindered their growth?

    I will let others decide, on this blog, since you have a fixed idea, which is not based on data.

  • 126. Patriot said:

    @ Shantanu:

    Thanks.

    I don’t think that the rupee’s fall can necessarily be just linked to NREGS (although, that has been a significant contributor to the deficit).

    I read a very good article yesterday, about how FII and FDI inflows into India boosted the rupee between 2008 (post financial meltdown 1) and early 2011. And, rupee was at 43-44, despite India’s inflation, fiscal deficit, slowing growth rate.

    Now, all of that has come to a head together – growth is going into a tailspin, inflation continues to be high and the fiscal deficit will widen as tax collections slow down on the back of industrial and services growth slowing down. We learn that even the exports number was wrong – there was a whopping “miscalculation” of $9.0 bn or thereabouts!!

    Since 2006, the UPA has been spending like there is no tomorrow – whether that be NREGS or other welfare schemes, on the back of rising tax collections and hence, revenues. Now, the time has come to pay the bill.

    I will check if I can post the link to the whole article.

    Cheers

  • 127. B Shantanu (author) said:

    @Ravindra: The big retailers will tackle the middlemen because it is in their own interest to do so (to cut costs), don’t you think? and I think you may be worrying too much about the big cos. (this is not to say that they don’t come with influence and agendas + $$ for lobbying)..

    @Patriot: I think you misunderstood me…I was not linking the Rupee’s free fall with NREGA. There are other – more relevant reasons…and as you say, NREGA is only one of the contributors to the fiscal deficit.
    Will await the link…

    @All: Pl do read Gurcharan Das on this issue..Some excerpts (with data), emphasis added:
    …The defeat of the government means that Indian consumers have lost a chance for lower prices, India’s farmers have lost the prospect of higher returns, a third to half of India’s food will continue to rot, and millions of unemployed rural youth have been denied jobs and careers in the modern economy. It is also a severe blow to the future of reforms in India.

    Indians today are victims of the primitive “mandi system” which escalates food prices by 1:2:3:4, resulting in the world’s highest gap between the price a housewife pays and what the farmer receives. What a farmer sells for 1 is sold at the mandi for 2, which becomes 3 at the kirana store and 4 to the consumer. When you pay Rs 20 per kilo for tomatoes, the farmer gets only Rs 5. As tomatoes travel from the farm to the mandi to the bania, each middleman gets his cut. The price spread varies by commodity and season, but studies show that the gap is less in countries with modern retail. This is because large foreign retailers usually buy directly from farmers without middlemen. Thus, they can pay Rs 8-10 to farmers for the same tomatoes and sell them for Rs 15-17 to consumers, and still make a profit. Some middlemen will lose out but P Chengal Reddy, secretary-general of Consortium of Indian Farmers Associations says, “India has 60 crore farmers, 120 crore consumers and half a crore traders. Obviously, government should support farmers and consumers. FDI in retail will bring down inflation.”

    …In none of these countries (like Argentina, Brazil, Chile, China, Indonesia, Malaysia, Russia, and Thailand) have small stores been wiped out; nor are there complaints of predatory pricing by supermarkets—the two fears expressed in the past two weeks. According to a recent study, small outlets have grown by 600,000 in China since 2004. “In Indonesia, after ten years of opening FDI in multi-brand retail, 90 per cent of the business remains with small traders, while employment in the retail and wholesale sectors grew from 28 million to 54 million from 1992 to 2001”. Kirana stores continue to succeed because they offer personalized service, give credit and deliver to the house.

    This issue goes beyond shops and supply chains to whether India’s democracy can throw up the sort of leaders who can reach out and persuade opponents about much needed reforms.

  • 128. B Shantanu (author) said:

    Quick excerpt from Britain’s High Streets Reach ‘Crisis Point’:
    “I would like to state from the start that this report is not about pointing fingers of blame.
    “While I do believe that there are many compelling instances where out-of-town retail has drained the traffic and shopping trade from our town centres, it would be naive and far too easy simply to think that they are to blame for the decline of our high streets.
    “The fact is that the major supermarkets and malls have delivered highly convenient, needs-based retailing, which serves today’s consumers well.
    “Sadly, the high streets didn’t adapt as quickly or as effectively. Now they need to.”

    Do read.

  • 129. Vijay Mohan said:

    Finally I found some reason to stop FDI in retail

    जब मिलावट खोरी एवं नकली वस्तुओं से कीमतें कम हो सकती है तो विदेशी दुकानें क्यूँ ?

    मिलावट खोर एवं बिचौलिए हमारे देश के हमारे अपने भाई बहन है ! उनके रोज़गार का किया होगा ?
    हमारा गुणवत्ता से कोई लेना देना नहीं है !

    आम आदमी बेवकूफ है , उसे समझ नहीं के कहाँ से किया और कैसे लेना है ! सरकार समझदार होती है ,अपनी ज़िम्मेदारी से भाग नही सकती ! उसे तेय करना होगा ! लोगों पर अंकुश लगाना होगा |

    विदेशी लोग हमारे सिर पर बन्दूक रख कर सामान बेचते हैं !

    फल , सब्जी , अनाज , सड़ने से खाद बनती है , छोटे कीटों को भोजन मिलता है |

  • 130. Vijay Mohan said:

    For those against FDI in retail

    Did you protest against entry of foreigners or foreign companies who killed the work of so many people in Letter posting industry

    The emails have killed and are killing the jobs and future chances of job prospects in the industry.

    Just raise your voices ..

    Emails might get banned in India … You will all be Heroes….

    so much employment would be generated.. Foreigners will not make money out of this , they will not take money to there country and they will not make you slave just like East India Company did ..

  • 131. Vijay Mohan said:

    If GOI take bribe from Walmart , Will it allow TESCO or Other competitors in ??

    Bribes are given to allow monopoly… not to bring competition in …

  • 132. Malavika said:

    This perhaps explains why there is such support for FDI in retail in the MSM.

    “Compared to this, Rs 52 crore that Wal-Mart acknowledged to have spent in India between 2007 and 2009 appear peanuts. But collectively the top 10 multinational retail companies eyeing the Indian market have reportedly sunk in several hundred crores in the past few years. According to media reports, the coffee shop giant Starbucks, had also been lobbying in India seeking 100 per cent FDI in single brand retail. As per a disclosure statement it made before the American Senate, the company had spent more than Rs 1 crore in the first 6 months of 2011 for ‘market opening initiatives in India.’

    In other words, crores of rupees are being spent by foreign companies to influence public policy and the decision making process. Not many of us realise that the debate we see on the television or the articles we see in support of the foreign companies are often supported with lobbying money. In fact, lobbying is also influencing academic research, which is a very sophisticated way of influencing public policies.”

    http://www.deccanherald.com/content/210565/world-lobbyists.html

  • 133. Malavika said:

    @Vijay,

    “The emails have killed and are killing the jobs and future chances of job prospects in the industry.”

    What has technology disruption to do with Walmart or big box retailers?

    @others,

    China allowed FDI in retail nearly two decades after it allowed FDI and AFTER it became a manufacturing power house. So, Having Walmart which procures from China will not cause any balance of payments crisis for China. Walmart has been good to China and terrible to US.

    China’s mercantile policy is to keep its currency and labor cheap and capture world market.

    So, if India says 70% of products/produce sold in big box retailers should be made in India, it would be a win win situation. But these behemoths would not like it.

  • 134. Jay Vachani said:

    http://www.outlookindia.com/article.aspx?279275 – Interesting view from Britain on the impact of “Tescoisation”.

    In my view, FDI in infrastructure (eg roads, water, power, ports, cold chains, storage facilities)is required if agriculture and farmer livelihoods have to improve, these are the major reasons for the losses & inefficiencies. Most farmers in India are small and marginal. Crop insurance doesn’t cover losses incurred post harvest and while stored. Insurance policies, technology/seed access and access to finance for small and medium farmers are major area of reform. The case for bio-engineered foods is a case in point where the likes of Monsanto wanted to introduce bio Brinjal when India produces over 300 varieties natively! Fortunately that got stalled when it was shown that the so called expert committee had effectively been influenced. When a Dr Mashelkar led committee can produce a plagiarised biased report, need one say more about the state of affairs?!

    FDI in retail is a different matter from infrastructure. Why not have an offset that says 40% of investment must be via SMBs in India? The Chinese use FDI to build local capacity by way of offsets, not mortgage assets. Something for us to learn from.

    Jay

  • 135. Vijay Mohan said:

    @Malavika

    “What has technology disruption to do with Walmart or big box retailers?”

    So you are OK with Technology disruptions .

    Wont you think the operation of Big retailers are better in TECHNIQUE . Or who so ever have better technique should flourish.

    I though you are more concerned about the outcomes when these big one will arrive.
    What about the outcome of TECHNOLOGICAL disruptions ??

    Both will have same kind of disruptions.
    emails have increased the efficiency and business prospects , So will be done by FDI in retail, that will welcome better and efficient TECHNIQUES.

  • 137. Ca Amod Pahadiya said:

    Respected Shantanu Sir
    All the above articles are very important, I will read this at latter stage. ( A huge knowledge resource)

    With respect to the all above comments and special thoughts
    My thoughts for consideration

    1 Why there FDI In Retail is necessary Without making our domestic industry Strong and more compatible with foreign players?

    2 What benefit INDIA would in turn for allowing the FDI for western country (Does our currency would get more stronger?), does Indian Would be elegiable for Business Visa Norma?, Would norms for Indian Professionals be relexed)?

    3 Why Government has pur such a relexed condition to the FDI investor buy only 30% of the supply from India SME or MSME, rest 70 % may be procured from China? and why not this 30-70% ration be reversed to 70-30 so that Indian Manufacturing would become more Strong and India can become a manufacturing HUB?

    4: One may argue that We need Foreign currency cater our Import Bill, then Why the 12$ Billion PASCO decision is being hanging? why Corus , Land rover, Novelies, Zen telecom investment is allowed ? why not that investment is attracted to Indian retail FDI

    we can go for Retail FDI
    A governemnt would be biggest beneficiary , our unorganized retail is appx 19,00,000 Crore, and government does not get full amount of tax (Local TAx, Octry, IT) from all small player, and if this sector become organised the statement government would be beneficiary

    B Like intense competition in telecom sector consumer is the KING, same story will be replicated in retail FDI,

  • 138. B Shantanu (author) said:

    @Amod: Pl do read the comments…They provide an excellent background to both sides of the debate..
    Some quick points in response to your concerns about FDI…

    1] What is the basis for assuming that domestic industry is not strong and cannot compete with foreign players?

    2] As the comments above note, the benefits would come in at multiple levels..

    3] The correct way to make Indian manufacturing strong is not to protect them but to expose them to foreign competition. That is the only way in which we will have world-class companies..

    4] The “need” for foreign currency should not dictate FDI and is not a point made by anyone above to promote FDI.

    Separately, from Are American Brands Losing Their Aura in Asia?:
    There was a time after Coca-Cola had left the Indian market that the soft drink was the ultimate status symbol in the country. At ostentatious weddings, people used to serve illegally imported Coke. The unofficial price was $3 a can, compared to the pre-exit price of just 10 U.S. cents. “Today, many years after [Coca-Cola is once again for sale in India], it is still not the largest-selling cola,” says Banerjee. That honor goes to Thums Up, a local brand bought by Coke.

    “Many Western products in India have had to change,” to fit the local audience, Kumar adds. MTV and Channel V, an international music network with headquarters in Hong Kong, have been totally Indianized. Two-wheelers and four-wheelers have been extensively re-engineered. Even McDonald’s has a very different menu at its India locations.

  • 139. Malavika said:

    China protects its domestic interests by imposing stiff import tariffs.

    Something for India to learn, actually India does that already in autos. Which led to a huge manufacturing base for car parts manufacturing and now we do export car parts.

    ” China began imposing stiff duties — including a tax of more than 100 percent — on those American chicken parts. The move was in response to a request by Chinese chicken farmers and processors, who claimed the U.S. government was unfairly subsidizing the American poultry industry through low feed prices and then selling the “chicken paws,” as they’re known in industry parlance, into China at below-market cost.

    The Chinese move raised an interesting legal question: How can the United States be dumping an item at below cost in China when that item is considered virtually worthless at home? “It’s taken what used to be a part of the bird that had to be disposed of in the United States and turned it into a revenue stream,” said Scott Sindelar, the Agriculture Department’s attaché at the U.S. Embassy in Beijing.”

    http://www.washingtonpost.com/world/asia_pacific/us-china-embroiled-in-trade-spat-over-chicken-feet/2011/12/13/gIQASphjxO_story.html

  • 140. Malavika said:

    @Vijay Mohan,

    “Wont you think the operation of Big retailers are better in TECHNIQUE . Or who so ever have better technique should flourish.”

    Their technique is harmful for the societies as amply discussed earlier. Those societies(several cities and counties) are explicitly passing laws to stop Walmart. Read my earlier posts. So, why should we import a failed Anglo Saxon model?

    I am ok with FDI in retail if 70% of the goods sold is sourced from India as others also noted. And no imported farm produce must be sold. There is no improved ‘technique’ in selling cheap and heavily subsidized farm produce from EU and US.

  • 141. Malavika said:

    @ Amod Pahadiya

    “Why Government has pur such a relexed condition to the FDI investor buy only 30% of the supply from India SME or MSME, rest 70 % may be procured from China? and why not this 30-70% ration be reversed to 70-30 so that Indian Manufacturing would become more Strong and India can become a manufacturing HUB?”

    Absolutely true. I would also add no imported farm produce, since EU and US heavily subsidize their farm produce.

    In fact I would also add 200% import tariffs on goods from China. There is no need to make them stronger since they claim our land, occupy Tibet and are setting up another Naval base in Indian Ocean.

  • 142. Hitesh Kumar said:

    @Malavika:-
    Why are you wasting time here.
    @All:- Those who are supporter of FDI. One word to you all :-
    Internet PE GHUSHI MARNE SE KUCH NAHI HOGA JO APP LOG KARTE HO CHALE INDIA KO BACHNE. AAOO KAM KAROO KAM KARKE DHIKHOO. KISI POLITICAL PARTY KI AUKAT NAHI HAI KI APP KO ROK SAKE. STOP TALKING ABOUT FUNDS THIS THAT , THIS POLITICAL IDEOLOGY THAT IDEOLOGY.

    FOR YOU ALL WHO WASTE TIME ON INTERNET :-
    Lehron se Darkar nauka par nahin hoti,
    koshish karne walon ki haar nahin hoti

    ITNA READ OUT KARTE HO YAHAN WAHAN. BHAI ITNA TIME KUCH KAM KARNE MEIN LAGA LIYA HOTA NA DESH KI YEH HALTH NAHI HOTI.

  • 143. Hitesh Kumar said:

    @ALL:-

    COME ! COME ! COME ! For your Nation.

    I bet how you people pay to LOCAL POLICE 10 , 20 , 50 rupees.
    If once you have paid your equally corrupt so don’t talk about FDI and other parameter to save Nation.

    Swami Vivekananda said “Give me 100 men of steel will and I will change the world”. He believed what the world needs is men of character than systems. His vision and teachings inspired many leaders who in turn inspired many more people in India. It would be not an exaggeration to state that there will not be a single individual of India who has not heard of greatness of Swami Vivekananda. But few will be able to dedicate their life to those ideals. Though such people may not gain popularity like movie stars, sports stars or politicians, they are spread across the country doing their work silently. They do their work unselfishly in some manner or the server serving the vision of ‘Glorious India’ without caring for name or fame.

    If you are unhappy with current society, materialistic nature of people, corruption, suffering and want to do something to eradicate all the ills from the face of earth, do you know what you can do? (Yes, everyone is fired with this resolve to change the world, including me). Don’t try to create new systems, don’t complain, don’t criticize, don’t do anything to change the world around you. CHANGE YOURSELF. Be the change you want to see in the world and people around you. Only thing you have control is on your self. Change yourself: Your character, your attitude, your goals and your ideals. Transform yourself first and then world will change inspired by you. If you can’t keep your house clean, how can you keep the city clean.

  • 144. Vijay Mohan said:

    Interesting piece here
    http://marginalrevolution.com/marginalrevolution/2011/12/india-and-the-power-of-productivity.html

    In the comments to Anti Chain Store Policies in India and America, “Lark” posted a long “refutation” from Triple Crisis of the “neo-liberal” arguments for retail reform in India. I will focus on one remarkable argument:

    …experience across the world makes it incontrovertible that large retail companies displace many more jobs of petty traders, than they create in the form of employees. This has been true of all countries that have opened up to such companies, from Turkey in the 1990s to South Africa. Large retail chains typically use much more capital intensive techniques, and have much more floor space, goods and sales turnover per worker.

    One estimate suggests that for every job Walmart (the largest global retail chain) creates in India, it would displace 17 to 18 local small traders and their employees. In a country like India, this is of major significance, since around 44 million people are now involved in retail trade (26 million in urban areas) and they are overwhelmingly in small shops or self-employed.

    Of course this is no refutation, fewer jobs are precisely the point. What India needs is fewer jobs; fewer jobs in retail, fewer jobs in apparel and, most of all, fewer jobs in farming. India cannot become even a middle income country if most of its workers, for example, are farmers. To improve its standard of living, India must use fewer people to produce more agricultural output.

    Fewer workers in farming (or retail) means more workers producing more goods in other industries. The same basic lesson holds throughout an economy, it is the declining sectors that allow other sectors to advance. Instantaneously? Immediately? With higher wages for every worker? No. Transitions always involve some pain; creation always involves some destruction; growth always involves change. The alternative, however, is stagnation.

    The politics of growth are difficult because those who lose from change are always present and are often more numerous and perhaps even more deserving than the present winners, the capitalists, the business people, the international mega corps; but today’s losses and gains are fleeting, the permanent winners are the workers and consumers of the future who will know only the benefits of productivity.

  • 145. sudhav said:

    @Vijay Mohan
    ‘What India needs is fewer jobs…To improve its standard of living, India must use fewer people to produce more agricultural output… today’s losses and gains are fleeting..’
    I cannot believe I am reading this as an argument to support the FDI. The callous capitalist at ‘work’ in unison with the goverment of the day. The statements you have made are nonsensical. How can one ‘improve its standard of living’ if there is more unemployment?Of course there needs to be increased efficency, but not at the cost of rampant long term unemployment. The economists and capitalists need to work from other basic principles as well as thinking of % growth and profits. What are the unemployed to do in India? Starve? Commit suicide and disappear?
    The goverment should perhaps think of introducing forced sterilisations again, not only because it will reduce the population problem, but because it will also reduce unemployment. Permanently.

  • 146. Vijay Mohan said:

    @ Sudhav

    Perhaps the karl marx in you prevented you from understanding the point made in argument.Perhaps the same prevented you from observing what is happening in the world around you!

    The author took the worst of the case and tried to explain ..

    Any technique , technology that has produced efficiency has actually resulted in more employment , I am not saying in same sector , but in variety of other sectors.This efficiency has increased per capita income and made everyone better off.
    Or if you can give me any example that efficiency in dangerous. Go through #57 you will see some other examples.

    I am not saying capitalism is ideal solution , but perhaps it is the best one we have .much much much better than what karl marx suggested.

    Another point, I am in favour of social minimum for everyone in the nation, which takes care of such CHANGEs in the economic environment.Equal opportunities to all.

    The same market scenario have made many rags to riches stories and also riches to rag. You can see many of them around you!

    Feel compassion , express it and use it with you , But please dont force your feeling of compassion on others. Blocking FDI in retail is nothing but a FORCE.

    And for your kind information , Population causes prosperity .

    Thanks
    Vijay

  • 147. Vijay Mohan said:

    @ Malavika

    Any technique that increases efficiency is BETTER for society! if you think otherwise than start following point #57

    It has also been explained in the arguments above and we have observed in our Dear India.

    You didnt answer patriot about any sector that has been effected badly with FDI in India .

    I am not interested in imitating foolishness of others.

    Ok , it is tough to understand , about importing subsidized stuff

    1 solution : Let it be, why are you stopping free inflow of saving/investment . if any other govt is subsiding for you! Ya this is bad for the country of which tax payers are paying to make products cheaper for indians.

    {consider a shop from USA in India that gives free stuff to Indians , I would love to take that , i have no issues , the amount I am saving , I will invest on other stuff. or you will use law to protect people supplying free stuff ?? }

    2 Solution : put import duties of amount equivalent to subsidy.

    I would personally prefer solution 1 , as savings caused due to subsidy in other country is proven to be good for country in which product is sold . Not in the same sector , but yeah for sure in every other sector. It causes displacement in jobs of the specific industry. But we have SOCIAL MINIMUM program that takes cares for that

  • 148. vikram said:

    i just came across this – which is contrary to this blog post

    How FDI in retail will hurt farmers
    http://www.thehindubusinessline.com/opinion/article2747451.ece

    kindly read his views too

  • 149. B Shantanu (author) said:

    Thanks Vikram…I shall have a look…In the meantime, an excerpt from Dilip Thakore’s editorial in Education India, December 2011..
    “Rooted in small-is-beautiful romanticism and elitist notions about the health-giving importance of unprocessed farm produce, persistent opposition to modern retail has extracted a terrible price from the nation’s neglected rural majority who despite constituting 67 percent of the country’s population, contribute a mere 17 percent of India’s annual GDP.
    With amateur middlemen dominating agriculture under the umbrella of the iniquitous Agriculture Produce Marketing Committees (APMC) Act, 1954 which mandates compulsory auction of horticulture produce through APMCs, it’s hardly surprising that 40 percent of horticulture and 10-20 percent of foodgrains produced by rural India is wasted or damaged inflicting a loss of Rs.50,000 crore annually to the Indian economy.Unsurprisingly, the stiffest opposition to FDI in multi-brand retail comes from the Communist Party of India-Marxist with the BJP also raising the bogey of local kirana stores going under against foreign competition.

  • 150. sudhav said:

    @Vijay Mohan
    I hate to have to start the New Year with this again, but there is no Karl Marx in me preventing understanding or indeed ‘prevented me from observing what is happening in the world around you!’ The retail chains such as Walmart still end up wasting 30-40% of fresh foodstuff in the West. And the average householder in the West wastes up to 20-30% of fresh food as well. The EEC, we are told, had butter mountains and milk lakes, to maintain the prices of these products, ie by hoarding/storage.

    Also population does not necessarily cause prosperity, otherwise India would be the second richest nation in the world, and it clearly is not.Have you seen the poor in India with 3-6 children to feed and bring up? They are not a visible sign of prosperity by a long shot.
    and @147.. Did no-one ever tell you there is no such thing as a free lunch in this world? Surely you are not so naive?
    So please open your eyes and observe for yourself.
    Good wishes to you for 2012.

  • 151. Vijay Mohan said:

    @ Sudhav

    People always feel that they have there eyes open and others have closed.

    To me I believe everyone has there eyes opened and hence let them judge themselves. If someone feels to go to Walmart , he must be FREE to do so. People like you believe otherwise that you know what is best for others and hence you should use FORCE of law to prevent other people.

    Again you are giving reason that people and there way of loving is the problem by stating indirectly that population is a problem.
    To understand Populations causes prosperity just move to a city in India with lower population , or compare the scenario of opening up a business in town with lower population or in a town with higher population. Why in the hell people are moving from rural to urban areas with higher population. try understanding LAW OF DIVISION OF LABOUR/TALENT. Try to get the stats of population of cities which generate maximum wealth. Compare various cities within same country.

    Again people like you inside government make laws to force your perception on others and the result is a MESS , disaster. Keep promoting the disaster.

    you must read and analyze further , I would suggest ” Population causes prosperity” here http://www.mediafire.com/?q2zttmvt0gn

    I am well against the concept of free lunch in the world. There is no free lunch , That is why I am against most of the schemes of Governments. But if some private is offering free , I am ok , He is USING HIS OWN money for that.

    Thanks & have a mindful 2012

    Regards,
    Vijay

  • 152. Malavika said:

    @Vijay Mohan,
    ” fewer jobs are precisely the point. What India needs is fewer jobs; fewer jobs in retail, fewer jobs in apparel and, most of all, fewer jobs in farming”

    I bet this ‘fewer jobs’ does not include your job.

    So, back to original Q,
    where in the world did Walmart help farmers. No where.
    Has the economy/income improved? No, just race to bottom.
    China’s growth is NOT because of FDI.

    So, beyond ideological reasons why do we need Walmart? You and uber consumerist keep shifting goal posts so much. First it was for farmers, then GDP(China growth, compared to India) then ‘technique’.

    B.t.w you can shop till you drop in Walmart and ship it your house in India. It is just that majority of us(Indians, now North Americans too) don’t want one in our backyard and that is how things work in a democracy.

    @Sudhav,

    there is none more blind than those who refuse to see.

  • 153. Malavika said:

    @Shantanu,

    You are clutching at straws!
    Modern retail has nothing to do with Walmart. Germany, France, Japan and etc have modern retail without Walmart. we can too.

    Using farmers(poor, impoverished) as a shield to shill for Walmart is unethical as this person Dilip Thakore is doing. So far no one has presented any evidence of Walmart helping farmers anywhere in the world.

    So, Walmart is not cure for what ails farmers.

    What would help is the initiatives taken by GUj govt and AP govt discussed earlier and better infrastructure. Not many in the media shill for these because there is no money to be made. Meanwhile it pays to be in the good books of a multinational with deep pockets.

    According to reliable sources Walmart bought expensive space in the heart of Cyberabad long before FDI was even introduced. And they still kept the space. So, I am not surprised at the continuing Public Relations bombardment by Walmart and its cronies.

  • 154. Vijay Mohan said:

    @ Malavika

    I bet this ‘fewer jobs’ does not include your job.

    I am an Optimization engineer in GSM , Which would soon be replaced by LTE a very efficient technology where Networks would be self optimizing. i.e. there would be no optimization engineers required .

    Would you please , spread the message and stop LTE in India ?? Can you , here are more than million Optimization engineers ? What would happen to them ?? Please please please ….. lol

    With different points , I am still trying to give various angles to debate.

    What you call “democracy” is actually MOBOCRACY. Where 51% can impose there thinking/perception on 49%.

    If you think most of indians dont like to go to Wall Mart then would mere presence of Walmart would make them go to Walmart ?

    Use of FORCE can not be justified if most of the people want it.

    If 51% of people want women to be inside home , Should Govt enforce it? ?

    The only problem with you is ….
    actually it is very difficult to see people doing , what you dont like . and you will use force to make them obey you!

    Regards,
    Vijay

  • 155. B Shantanu (author) said:

    @Malvika (#153): “Germany, France, Japan and etc have modern retail without Walmart. we can too.”
    So are you not against FDI in retail per se but only against big cos. in retail?

    And I am not saying Walmart is the cure for Indian farmers but better pricing is, as is better infrastructure, as is more competition, open-ness etc etc. Don’t you agree?

    P.S. I must confess I still have not gone through the links relating to Gujarat/AP. Hope to read through this weekend. Thanks for continuing the discussion..

  • 156. B Shantanu (author) said:

    Placing this here for the record…
    http://pragati.nationalinterest.in/2012/01/ultimately-the-market-is-the-winner/
    If someone has a few mins, grateful if you can post a summary of the arguments made in the post above..I am badly tied up until mid-week. Thanks

  • 158. B Shantanu (author) said:

    Interesting to see that online retailers in India are actually welcoming foreign competition: Business owners say that Amazon’s entry validates the Indian e-commerce industry and they can learn a lot about the business from the world’s biggest online retailer.

  • 159. B Shantanu (author) said:

    Excerpt from Untenable critiques sowing confusion on supposed ill-effects of retail FDI by Prof J Bhagwati:
    …The economic gains from retail sector liberalisation are considerable indeed, as has been argued in many studies. Also, as we argue below, the liberalisation of the retail sector offers little risk: the risk to the small shopkeepers – the so-called mom-and-pop shops, a cultural misnomer since, in India, the old moms and pops are not seen in these small shops as much as middle-aged and younger family members – is limited.

    Besides, we should have learnt by now that forgoing economic gains just because you are afraid of a possible downside is the wrong way to plan. Instead, we should embrace these gains and have a machinery set up to assist the small shopkeepers if and when they succumb to, instead of profiting from, the influx of the multi-brand retailers.

    What is surprising, however, is that some economists have also expressed opposition to the proposed retail liberalisation. Chief among them are the economists Raghabendra Jha (who works in Australia) and Raghav Gaiha (who teaches management in Delhi University). Their recent arguments in ET that “not only will multi-brand retail FDI hurt kiranas, infrastructure and farmers too won’t gain” ( Wholesale Gaps in Retail FDI, October 4, 2012) are readily refuted.

    Thus, they claim incorrectly that there is no evidence showing that FDI in multi-brand retailing will not affect the growth of kirana, i.e., small stores. In a forthcoming but long-available paper written in the Program on Indian Economic Policies at Columbia University in April 2011 – a shorter version based on it is in our article, Selling The Wrong Idea, Times of India, December 12, 2011 – we used the results of a time-series model to predict that retail sales can continue to grow at the post-2005 rates in the short run, and that unorganised (read: small) retailers should capture three-quarters of a projected $138 billion increase in real retail sales during 2009-16. The entry of multinational retailers may lower the sales increase for unorganised retailers, but it will not reverse their growth in the near future.

    Second, we are free to learn from experience in other countries. In particular, we can draw on the Japanese experience where the mom-and-pop scare was raised when the US used gaiatsu (foreign pressure) to virtually eliminate restrictions on the expansion of large retail sector stores. Japanese experience, which we and others have studied, show that little of this happened. By contrast, Messrs Jha and Gaiha offer little more than assertions in embracing the usual fears of damage to the small shops.

    Third, Jha and Gaiha claim there is no evidence to suggest that farmers will earn higher prices after the entry of multinational retailers. Instead, they expect these firms to act as monopsonies. Our research indicates that Indian farmers typically earn a third – instead of the international norm of two-thirds – of the final price of their produce because of greater waste and less efficient distribution, and because wholesalers operate as exclusive buyers by the state APMC Acts.

    One aim of the required investments in storage and warehousing by multinational retailers is to reduce waste and improve supply-chain efficiency. Contrary to the claim that multinational retailers will become monopsonies, we have argued in our research that farmers should to able to sell to multiple (domestic and multinational) organised retailers as well as the existing wholesalers supplying unorganised retailers.

    Thus, Jha and Gaiha fail to make a case against retail sector liberalisation. In particular, their assertion that the measure has been adopted without serious argumentation and research cannot be sustained. It is a red herring.

  • 160. B Shantanu (author) said:

    From http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4702
    The arrival of foreign retail chains has twofold impact. First, those companies set up supply chains and logistical capabilities, spurring significant improvements in the infrastructure needed to source, ship, store and deliver products (covering all aspects of value chain and supply chain activities, including storage, warehousing, and information-intensive operations). Second, their entry and expansion induce domestic competitors to invest in infrastructure and logistics, as well as greatly speed up the emergence of product standards (especially in perishables and personal consumables), and begin the process of bypassing monopsony buyers and traders that dominate procurement in many product categories today.
    ….
    These firms’ real competition will be the domestic multi-brand retailers. A recent study by the CII and Boston Consulting Group estimated the size of organized retail of US$28 billion in 2010 to be 6% to 7% of the total retail market in India. The study predicted that the size of retail — total retail sector size, not just organized retail — would grow to US$1.25 trillion by 2020 if the efficiencies that typically come from greater competition and modernization of retail supply systems were to be unleashed. Under this scenario, the study predicts that the size of organized retail could grow to US$260 billion or about 20.8% of the total market. So even under this scenario, the idea that a fractional segment that accounts for 20.8% of the total economic activity of a sector can drive the remaining 79% of that sector out of business does not stand the scrutiny of rea

    The CII-Boston Consulting Group study found that an Indian tomato farmer earns about 30% or even less of the final price paid by the consumer (in developed countries, that percentage can be as much as 70%). For this reason alone, farmers and producers should welcome this development (and for this reason alone, traders oppose it). Indeed, the Indian Farmer and Industrial Alliance (IFIA), a joint venture of the Consortium of Indian Farmers Associations (CIFA), recognized the potential benefits of eliminating middlemen and has expressed its support for opening the retail sector to foreign investment.

    As with any other sector, the entry of foreign players introduces competition that will benefit some and will work to the detriment of others. The beneficiaries in this case are the Indian consumers, the lower middle class, which will benefit from the well-paying jobs that will be created, and the producers of goods — including farmers — that have been at the mercy of middlemen and monopsony buyers and trader monopolies

  • 161. Khandu Patel said:

    The decision on FDI in multi-brand retail has been made as far as I can see without Parliamentary approval. I was never impressed with the arguments. The enthusiasm of the Freedom Team India hardly learned from the misery that was inflicted on India when the British plugged it into the global economy by promoting cash crops. Tens of millions of Indians paid with their lives in the famines that followed. I can see that there are real failings in which exploitation is a serious problem at the different levels of Indian society. That is problem reflective of Hindu moral and ethical failings. It won’t be cured by allowing foreign nationals provide the rules of the game. The dislocation of the Indian economy and Indian politics is sure to recreate the bad days of when the British ruled India. The antidote to is for a strong government of India. All I have post Indian independence have been feeble.

  • 162. Khandu Patel said:

    My distrust of FDI in India has been confirmed by Noble Prize winning economist Joseph Stiglitz. See http://timesofindia.indiatimes.com/home/stoi/all-that-matters/India-doesnt-need-FDI-in-retail-to-grow/articleshow/16895891.cms

  • 163. B Shantanu (author) said:

    Thanks for sharing the links Khandu..

    P.S. Pl do take note of my latest post. Will have less time to respond due to increasing activity on the ground (which is a good thing!)

  • 164. B Shantanu (author) said:

    “Dumb and Dumber” – these were the words that came to my mind when I read this: “FDI in retail will hurt Muslims most
    Scary to see someone clearly well-educated (and a visiting faculty) talking about judging economic policies on the basis of “majority”, “minority”, Hindus and Muslims.
    What next? Better manufacturing techniques and national manufacturing zones will hurt Muslims most?
    While on Manufacturing zones, it is instructive to read what a big difference they could make (from Prof Anil Gupta’s “Agenda for Renewal” http://j.mp/WJNJQq):
    “The first such initiative pertains to the creation of National Investment and Manufacturing Zones. By eliminating much of the red tape and infrastructure bottlenecks, the NIMZs are likely to usher in a manufacturing revolution in the country.
    At its current stage of development, India needs to build a far more robust manufacturing sector that accounts for not the current 16% but a far larger 30+% of the country’s GDP”

  • 165. B Shantanu (author) said:

    From FDI in Indian Retail: The Big Benefits Will Come Tomorrow, Not Today:
    ……
    The direct FDI impact in the short term from retail chains will be modest. If you look at the numbers — as per [financial information services firm] CEIC Data — FDI in 2008 was in the ballpark of US$35 billion and declined in 2009 and 2010. FDI in 2011 came in at around US$27 billion or so. So if we ask the question: Will international retail chains in the shorter term — an 18-to-24 month horizon — bring in US$8 billion to get back on track, the answer is probably not.

    The arrival of foreign retail chains has twofold impact. First, those companies set up supply chains and logistical capabilities, spurring significant improvements in the infrastructure needed to source, ship, store and deliver products (covering all aspects of value chain and supply chain activities, including storage, warehousing, and information-intensive operations). Second, their entry and expansion induce domestic competitors to invest in infrastructure and logistics, as well as greatly speed up the emergence of product standards (especially in perishables and personal consumables), and begin the process of bypassing monopsony buyers and traders that dominate procurement in many product categories today.

    For these reasons, foreign investment in retail has an impact that goes beyond its direct investment impact. It is a force multiplier that induces even more investment from competitors.

    Impact on Mom-and-Pop Retailers

    FDI is often opposed on the grounds that it will put mom-and-pop stores out of business. This is very unlikely for several reasons.

    …These firms’ real competition will be the domestic multi-brand retailers. A recent study by the CII and Boston Consulting Group estimated the size of organized retail of US$28 billion in 2010 to be 6% to 7% of the total retail market in India. The study predicted that the size of retail — total retail sector size, not just organized retail — would grow to US$1.25 trillion by 2020 if the efficiencies that typically come from greater competition and modernization of retail supply systems were to be unleashed. Under this scenario, the study predicts that the size of organized retail could grow to US$260 billion or about 20.8% of the total market. So even under this scenario, the idea that a fractional segment that accounts for 20.8% of the total economic activity of a sector can drive the remaining 79% of that sector out of business does not stand the scrutiny of reason.

    The CII/BCG study also estimates that if the organized retail sector is not modernized — the “as is” economic scenario, as the study calls it — the size of the sector will be about US$170 billion. This underperforms the earlier scenario by about 35% or so. That difference could be a job creation deficit of about 1.4 million jobs with an even higher potential loss of economic product since organized retail pays better than local, scale-deprived mom-and-pop establishments. This is without taking into consideration other jobs that would not be created in economic activities that span infrastructure and logistics.

    Supply Footprint: Traders — Not Farmers — Beware

    The foreign retail chains will have a more significant impact on traders that dominate procurement of commodities and perishables, including grains and cereals. It is not surprising that these traders are the most virulent opponents of FDI in retail (the main opposition party that derives its support from the trading castes and traders has openly stated that “traders’ interests will be harmed by FDI in retail”). Indian farmers and many other rural producers are at the mercy of large and well-organized monopsony buyers. Very often these traders dominate geographies and account for nearly all procurement in their geographies. In many states, the food ministry determines who it will buy from and this is usually a small number of traders who in turn dominate direct procurement from farmers in their geographies. These are economic fiefdoms that they dominate and exploit. When the Carrefours, Walmarts and Tescos set up direct procurement mechanisms where sophisticated procurement systems are put in place and information about demand (prices, product varieties and quantities demanded) becomes more easily available, it becomes more difficult for the middlemen to dominate local geographies and restrict competition. The emergence of these supply chains that drive transparency of information will bring significantly more competition in sourcing.

    The CII-Boston Consulting Group study found that an Indian tomato farmer earns about 30% or even less of the final price paid by the consumer (in developed countries, that percentage can be as much as 70%). For this reason alone, farmers and producers should welcome this development (and for this reason alone, traders oppose it).

  • 166. B Shantanu (author) said:

    Placing the link here for the record: FDI in Indian Retail: More Hurdles for Walmart and Others

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