The great FDI debate

We are having the great debate on FDI going on in both houses of parliament. And looks like the government is going to win the vote on it and its going to be passed, finally as a bill. By doing this, we welcome the Walmarts, Tesco and Ikeas of the world. Key things which differentiate the entry into Indian space for any foreign retail giant are to be noted here. The first being, every state in India has the final say in it, so inevitably, the ones who see this as too-foreign, and job-destroyer will not allow it. Secondly, such retailers can only be opened in large cities with greater than 1 million population. This is important, as it makes sure that there is enough space for both the local grocer and the big malls, as due to the inherent nature of our society and economy, there will always be people shopping from local 'kirana' (mom and pop) stores. However, the ugly ones, and ones which do not add any value to the economy, by hoarding whenever possible, by cheating on excessive prices/faulty weighing machines will definitely be off streets. We will also see some of these people (and people working for them), moving into other jobs likely to be created by the big supermarkets (directly or indirectly).

I think this is a good move by the government, especially because we are not going the whole hog. Cautious steps , like the ones which prevented the over-indulgence of domestic banks in casino activities of the foreign banks (which led to the crisis, remember ?), saved us from going bust like the EU. We will never see a Tesco in every city if we go this cautiously, at least in the next 10 years, and we will get a chance to better this model as there will be a lot of learning generated. Our retail sector as a whole will gain the much needed expertise as our middle class economy grows (burgeons), and there is no reason why we can not see a successful domestic retailer (big bazaar) grow as mammoth  size as Tesco ($64 Billion Revenue & more than 500,000 employees worldwide).

There are many arguments which have been presented in the media , both for and against, and I do not think any of them hold ground. The fact that we are not allowing the foreign players a complete 'hand', I think we are playing it safe. In this time of fiscal crisis, lower growth, falling USD revenues, shrinking EU , when our balance of payments could go for a toss in less than 6 months (cant verify the source), we definitely need to move swiftly. One remark made by leader of the opposition who is vehemently opposing this move demands attention. She says that to keep prices low Walmart etc will source materials from China and we will in turn be helping Chinese manufacturing sector, instead of creating domestic jobs. Well, that is narrow thinking, and looks like an argument made just for the sake of it. If there is such demand for Chinese goods, I am sure there will be companies that will start competing with them by producing them domestically at lower cost and better quality. Also, a booming Chinese economy will only help the global economy (and ours in turn too) in the longer run.

One of my friends pointed to the post in The Hindu about the waste that the supermarkets create because of their quality standards. It is true that undersized onions, and bananas not curved to right degree are rejected by supermarkets in many countries. But its an exaggeration, if not anything else. We already waste a lot of grains and vegetables. Consider this an additional refrigerator in the house which will hold more food items that you buy from the market, and keep them for longer.

And because we can not afford to (not allowed to) have Tesco/Walmart in every nook and corner, there will always be enough demand for even the so called 'substandard' produce. But, waste, like we do now, is inevitable. Why can't the government make sure it invests more in cold storage facilities (modern ones) by the money it generates from FDI so that it can give fair price to the farmer, so that the farmer can get a better buyer to look forward to and not forced to sell to middleman (now) or Tesco (future).

India is such a diverse nation, both socioeconomically and geographically that we will always have a place for all types of businesses to run their shops. We just can not have a single formula (FDI for all , no-FDI for all) for every problem. Allowing FDI in retail is that cautious step in the right direction.