Stark stats: 40 mn traders may gain, 122 mn consumers could lose if retail FDI is trashed

29 Nov,2011

By Smriti Seth


The consumer is not king, apparently. The hullabaloo over easing foreign investment norms in multi-brand retail is centered on the notional loss to a fraction of traders in the country and the consumer has been passed over.

A comparison of potential gainers and losers in the government’s move to open up the country’s $450 billion (over Rs 20 lakh crore) retail segment to foreign direct investment (FDI) reveals that while a section of 40 million traders are likely to be affected by competition from organised modern retail, about 122 million consumers stand to benefit from it.

Some experts say FDI debate underplays the importance of consumers in an economy.

“We must not forget that consumers are the most important part of our economy today. They will also be the biggest gainers from FDI in retail, thereby benefiting the entire country,” said Mr Akash Gupt, executive director at PWC.

The government on Thursday allowed 51% FDI in multi-brand retail, but restricted it to cities with population in excess of one million. It also raised FDI in single brand to 100%. As per the 2011 census, consumers in the 53 most populated cities of the country add up to over 122 million. In contrast, the numbers of people connected with retailing in the country is about 40 million, according to several estimates.

In big cities, the number of people working in the retail sector is likely to be lot less.

Buyers are expected to benefit the most from the increased competition in the retail industry in terms of prices and quality. “Competition will push prices down and improve quality of products,” Mr Gupt said.

Despite the apparent benefit to consumers, some political parties and state chief ministers have come out strongly against the government move. Eleven states have said they will not allow supermarket chains to set up shop. On Monday, the parliament was adjourned because of the uproar.

The opposition could restrict access for foreign retailers such as Walmart and Tesco to only about 25 big cities.

Experts debunk the entire notion of FDI-funded modern retail causing a widespread loss of jobs in the unorganised sector, or the ‘kirana’ segment.

“Since foreign retailers are only being allowed in large cities, it should not have an impact on employment, most of which comes from smaller cities,” said Mr Mathew Joseph, co-author of the report ‘Impact of Organized Retailing on the Unorganized Sector’ published by ICRIER, a think tank.

“It might have some effect on profitability of small retailers in the beginning, but they will have enough time to brace themselves for entry of foreign players and will recoup quickly”, the report says.

There are other stakeholders as well who stand to benefit.

As per the FDI policy approved by the cabinet, the foreign retail outlets have to necessarily source 30% of their raw materials from Indian micro and small enterprises.

The policy mandates a minimum of $100 million worth of investments, of which at least 50% has to be in back-end infrastructure, most of which will be in rural areas that will fuel employment growth there.

“Employment opportunities will be created from the need for front-end retail staff; improved supply chains will generate more jobs and sourcing goods from small industries will help in job creation as well,” said Mr Paresh Parekh, partner, retail and consumer product sector, Ernst and Young.


Source:The Economic Times

Copyright © 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved

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