‘FDI in organised multi brand retail: India not yet ready'

When it comes to the latest CoS (Committee of Secretaries) suggested riders for FDI in organised multi-brand retail, the said conditions are not India-ready, feels Martin Patrick, economist based out of Kochi.

A retired professor from Kochi’s Maharajas College; Martin has been researching the issue for past three years and has written extensively on the subject.

“It can be a risky situation if FDI is allowed for with the current riders. Generally, the food market is closely connected to ordinary people. The government ought to have strengthened small-medium scale contract farming system and should have empowered farmer co-operatives before allowing for the FDI. The farmers are least organised.” he said, adding “especially the farmers that produce perishables.”

This also means India is not yet ready for the FDI.

The government is working to evolve a political consensus, which has not worked out well, he feels.

“Other than that, the government should have tried to strengthen the farmers from an economic perspective as well.” he added.

“It has not happened.” he said. “There is an element of democratic malfunction in all these.”

Also, there is a profusion of small/ medium-scale farmers in India. If they are unable to provide these retail chains produce at stipulated standards (which may be too high for them, given their resource limitations), there could be a situation where these poor farmers are de-listed from the sourcing list of these retail chains, Martin feels.

“If there were farmer co-operatives, the farmers who would have sidelined could have sold their produce to these co-operatives.” Martin added.

Employment loss

It is a given that when the retail chains open stores, many of those kirana (neighbourhood) stores would shut shop and many of those employed there would be thrown to the mercy of winds. It is also a fact that once the retail chains open stores, many new job opportunities would be generated.

So, will not the job losses be offset?

Martin provides a few statistics: He says:

There are about 35 towns in India with population exceeding 1 million. There are at least 4, 32,000 people employed in these towns in India in small-scale to medium-scale shops. With the entry of big chains, many of them will lose jobs.

Staggering enough, there are about 14 million kirana-shops in India employing 1.5 people on an average which are mostly family owned and family operated. The chains, once they expand, would hurt the employment status of these people as well.

He also invites attention to the past experiences in FDI in manufacturing segment backfiring. “The firms which were allowed FDI opted for full-fledged mechanisation thereby trimming jobs.” He said.

“In general, I expect farmers to be exploited more”, he said.

“There are no statistics to state that employment opportunities have enhanced when past experiences in FDI in retail in other countries are taken into account.” He said.

Inflation cannot be checked

“When these retail chains enter the market, they sell products initially at a low price, which they would later on increase. But people would continue to flock to these chains, as convenience matter to them.” Martin said, adding “It is more of a psychological effect.”

“The point is that inflation cannot be checked as consumers would still have to bear the cost.” He pointed out.

“My own observation is that 20-25% of people who shunned the kirana-stores, with the foray of Indian retail firms into the markets, have returned to the surviving shops.” He said.

Additionally, when foreign retailers enter the cities, real-estate prices would benefit. But, in future, when they reach the rural and sub-urban centres, price escalation in these areas may create problems, Martin feels.

Future hazy

“Standardisation in farmer produce and subsequent de –listing of non-compliant farmers could enrage the farmer community.” Martin added.

“We still do not know how the farmers would react to such a situation.” Martin concluded.

As published in: http://www.commodityonline.com/news/%E2%80%98FDI-in-organised-multi-brand-retail-India-not-yet-ready-41764-3-1.html