FDI in Retail in India --- Incredible Myth or Plausible Reality

  

FDI in retail (100% in multi-brands) is our current national obsession. To some (read middlemen/ traders lobby) it would be a calamity, will create massive unemployment, increase inflation, bring misery to the millions, mostly poor, in this country and, therefore, totally unwelcome. To many (the much-harassed consumers, high-end farmers and corporates) it would be a much-needed revolutionary step in the right direction, just a trifle short of panacea. But first the facts and the ground-realities.

India has nearly 600 million farmers, 1200 million consumers and 5 million traders. In a written reply to the Parliament in April, 2012, it has been stated by the Government that India is now World's 2nd largest producer of Vegetables and Fruits after China with a total production of 77.52 million tons of fruits and 149.61 million tons of vegetables in 2011-12. During 2010-11, we also exported vegetables and fruits to many countries to the tune of Rs. 3856 crores (US $ 760 million). However, if we care to read a report of Central Institute for Post Harvest Engineering and Technology, Ludhiana published in 2010 it says that nearly 18% of our vegetables and fruits production worth Rs.44000 crores (US$ 8 billion)are wasted annually due to lack of cold storage facilities and other factors. For such a huge country like India there are only 5400 cold storages with nearly half of them in UP, Punjab and W. Bengal. 4875 of these belong to the private sector, 400 run by the co-operatives and only 125 by the public sector units. As stated by the union Minister of state for Food and Agriculture only 2% of the total horticulture production in the country is being processed now as compared to 15% in China and 8% in the Asia-Pacific countries. For a country with over 300 million people below poverty line this loss is colossal and avoidable. The absence of a farm to fork retail policy compels the consumers to pay a heavy premium for shortages and wastages.

The stranglehold of middlemen and greedy traders is at the root of rural poverty and a major cause for the pathetic condition of the farmers all over India. Fruits and vegetables which are perishable commodities pass through 5 to 6 layers of middlemen and due to addition of margin at every stage there is a huge difference in the farm gate, wholesale and retail price. So a humble potato for which a humbler farmer has to console himself with a price of Rs 2 a Kilogram will cost the consumer ,the last link of this complex  chain, anything between Rs 10 to 12. A cool profit of 600% to the dreaded middlemen blessed with a Midas touch. The middlemen and some traders are responsible for hoarding and black marketeering to a great extent.

 Indian farmer who has earned a good name for his innovative skills, fortitude and immense capacity to work hard in adverse conditions not only in his own country but over a dozen countries in the Asia, Africa, Caribbean and North America fails to get a fair price for his toils and sustained labour at home even after 65 years of Independence. Every year they are fleeced by the unscrupulous middlemen and traders as neither the farmers/producers nor various government agencies are in a position to ensure proper marketing of products. The only practical solution to mitigate their plight is direct and bulk purchase by the large retailers.

 This is why we need 100% FDI in multi-brand food-based retail. Contrary to what the skeptics may say even they know within their hearts that the foreign retailers would bring back-end infrastructure via: - cold chains, refrigeration, packaging, storage, transportation and introduce much-needed efficiency and modern practices in the supply and distribution chain. They will procure in bulk and sell at competitive price. Their entry will promote agricultural growth by increasing farmers income, creating efficient  Small and Medium Industries, providing several million jobs in the small and medium industries as well as logistics sectors for both the skilled and unskilled unemployed, enhance manpower and skill development, bring additional revenue to the exchequer, save massive wastage which would become available for domestic use/exports. Surely, the big MNC giants like Wal-Mart, Tesco, Carrefour and others are not coming to India for charity. They too will make profit but not even remotely comparable to what the Indian middlemen/traders are making. Further, they would not dare to sell the consumer sub-standard or adulterated foodstuff or pesticide-ridden fruits and vegetables. The unhygienic conditions of the shops and problem of under-weighing would also disappear. All these benefits will accrue to the consumers.

Some of the countries who have benefited by allowing 100% FDI in retail include China, Russia, Indonesia, Thailand, South Africa, Brazil and Argentina. However, before taking a plunge the government will have to  evolve clear-cut policies that provides a level-playing field to foreign and Indian big players and protect small retailers by having a legal framework that prohibits retail giants, both Indian and foreign, to indulge in predatory pricing and other unethical practices. Since the predominant retail (up to 98%) is in the unorganized sector and consists of Mom and Pop shops, convenience (Kirana) stores, street hawkers, peddlers on the wheels and pavements, village markets, it is imperative that  an enforcement mechanism is in  place  to ensure that small retailers are not dislocated by unfair means by the large ones. In particular, the foreign investors should be asked to make a real contribution to the development of infrastructure, logistics and agro-processing units. Then, it would be a win-win situation for everyone except the middlemen. The farmer gets a better price for his labour, consumers pay lesser price for a quality product with more variety to choose from. For the Small retailer it would be business as usual with a smaller margin but higher productivity and better services. The government earns more revenue and the nation and its people get world-class infrastructure.

FDI in multi-brand retail which could be one of the sunrise sectors for the Indian economy is a political hot potato right now and major opposition parties would love to upset Congress's apple cart if it finally decides to go ahead. It would be a tad difficult to evolve a political consensus and get all political parties on board. But for the ruling party suffering from the ill-effects of one scam after another in the last 3 years, election reverses in several states,  acquiring dubious tags of '' policy  paralysis'',  ''direction-less'', ''underachiever''  and the next general election looming large,  it would be a good idea to  bite the bullet on this thorny issue. They should engage with every party and try to get this through by consensus, if possible. Who knows they might repeat their performance of July 2008 on Indo-US Nuclear deal. If their pull, pressure and persuasion work with the usual suspects, they will triumph and the win would energise their demoralised cadre. The main opposition party should handle this issue with gravitas. Any faux pax and they would be reduced to calling the clinched FDI deal as sour grapes. In the bargain, they would also lose a large chunk of their main supporters - urban middle class.