Over the past week the topic FDI in multi brand retail has become a platitude with most of us professionals painting a rosy picture of the supposed benefits that such a policy will usher and the sweeping change it will bring. However, I hold a little divergent view on this reformist measure and I have my own strong arguments for it.
For those obsessed with the geographical reach and demographic boundaries that multi brand FDI in retail will help to cross, we must remember that such FDI will only aid the establishment of stores in urban agglomerations whose cumulative population as per 2011 census comes to 14,06,87,573, which is approximately merely 11.5% of our 120 crore population. As such its target area seems to be to limited in the medium term
Secondly, we have seen many experts holding the view that it would bring in the much needed finance in the retail sector. However, we must not ignore the fact that many of India's leading business houses such as Reliance, Tatas, Bharti, Aditya Birla have already jumped into the retail bandwagon and by no stretch of imagination do they seem to be in short supply of funds. Therefore, I don't agree with the idea that the funds to fuel the retail boom into our economy needs to be imported from outside.
Thirdly, while we draw parallels with the western economy to forecast the potential economic benefits of opening up the multi brand retail segment to foreign investors, we must understand that there is a chalk and cheese difference between the composition of the Indian and western economy. For a labour surplus economy like India such standalone retail stores, perhaps, provide the most convenient means of self employment. Therefore, while we speak about the employment opportunities such organized retail would bring we must not forget that the fact that it seeks to convert a large chunk of our populace into the salaried class, in the process crushing the entrepreneurial spirit of our country and further widening the already rising inequality.
Further, many are of the view that it would lead to positive backward linkage effect thereby improving the condition of farmers as well as SME's. However, the minimum requirement of sourcing such goods from domestic market is only 30%. This is merely a token requirement as compared to the market we are throwing open to such retailers and will inevitably lead to dumping of foreign manufactured goods. Moreover, it will sooner or later result in creation of market where a few buyers will dominate the scene, especially, in areas near urban agglomerations, thereby adversely affecting the interest of the farmers for whom it is now considered to be a boom.
Lastly, but definitely not the least we must acknowledge the fact that the Indian consumers have markedly different characteristics as against western countries. Whereas the need for such organized retail stores is generated due to the preferences of the buyers for one stop purchase, in a country like ours where the majority of the population still dwell in the rural areas, such time crisis seem to be a distant dream. We have ourselves witnessed the fall of many retailers such as Subhiksha and more recently the sale of retail behemoth Pantaloons. All such factors hint at a single point- India is still at a premature stage for such organized retail to rush in and FDI will cause further harm in the consolidation of this sector as we are likely witness a situation of excess supply. Further, there are several legislative changes which are required to make the benefits of organized retail a reality, the most prominent among them being the introduction of GST in the absence of which the goods can never be made available at low prices due to the existence of multiple points of taxation. In the absence of such changes organized retail will fail to attract much investments
Thus, to conclude I can just say that while FDI in multi brand retail seems to be a bed of roses, in reality it is a mixed blessing where perhaps, the disadvantages far outweigh the advantages as things stand today in our economy. We need to open up those areas to foreign investors where there is shortage of funds or domestic investors are apprehensive about investing such as infrastructure, power, etc. The need of the hour is to expand our economy and not just to increase the competitive environment without any real growth as with such FDI in retail the consumption side is not likely to rise but the sellers are merely replaced. We need to make our vision clear before we embark on such reforms which according to me will not bring any real growth to our economy.
CA Akash Gupta
Kolkata
CAclubindia
