The govt of India proposed 51% foreign direct investments(FDIs), in retail sector, which became most controversial with the big hungama conducted by major opposition party(BJP),Mamata Banerjee,Leftists and many other regional parties across India.Many of the political parties are opposing this move based on their political grievances.Many of the people are also opposing this move out of fear that it will ruin the local retailers, this fear factor is just because of little knowledge and inability to analyze FDIs nature(Nature of FDIs demands to have little knowledge on economics which obviously a frustrating factor for common people like us).This fear factor is being aggravated by opposition parties successfully.In this regard i would like to give you some pros and cons, of FDIs, based on arguments raised by protesters and supporters.
India’s retail sector is already opened for indigenous operators(major participants being reliance,Aditya Birla group,Tata group,Pantaloon Retail,K Raheja Group,Piramal Group,Bharti-Walmart(a joint venture)). There is no logic in keeping foreigners out. Entry of foreign players means more competition, improved supply chain efficiencies and better offerings for consumers and, most likely, better prices for farmers. This concept already proved in the area of telecom and software sectors successfully . In telecom sector the entry of Vdafone didn't end the business of BSNL,Tata and other perhaps Indian players are sharing major market Airtel being predominent. In software services the entry of Microsoft,IBM and many other foreign companies didn't end the business of Infosys,TCS and many other Indian companies instead this sector has created hundreds of small and marginal s/w companies,became financially good source of employment to lakhs of people and also emerged as one of the major source to raise forex to Govt of India.Same hungama conducted by the then contemporary opposition to curtail entry of service sector in 1991,but ultimately time proved what is right and what is wrong.
Same concept would definitely successful in retail market also if the proposed FDIs bill is implemented with strong determination. Let us see the features of proposed bill and their +ve and -ve sides.
Some Important feature:
1) FDIs can not move into any prat of a state without prior-permission of state govt even though the central govt permitted it.
2)Can't be accepted in any city where population is less than 10 lakh.
3)Even in cities with more than 10 lakh population also foreign players needs permission
4)50% Investment has to be spent on development of infrastructure.
5)3 years lock-in period.(Govt is trying to reduce this,but it should not be reduced at any cost)
Indian govt has ensured enough provisions to safeguard the interests of kirana shops, farmers and small manufacturers by imposing conditions (on foreigner retailers) such as domestic sourcing norms, entry at the discretion of States and permission to operate in cities with a population of 10 lakh or more. Investment has to be made to create back-end infrastructure such as cold storage chains(crucial for food processing sector) which would be a great help for farmers belongs to horticulture and vegetable growers.In fact Govt already allowed 100% FDIs in food processing and cold-storage but this scheme didn't attract investments since retail sector is totally closed.
So, with the above restrictions on one side and the competent Indian corporate on the other side it would hardly possible for any foreign player to monopolize the market.It only can give good competition to Indian players and will reduce the gap between production cost and consumer market cost of commodities.To sustain this competition all these companies has to start procurement directly from farmer by bifurcating middle men(who are one of major exploiters of farmer). Here the worst impact is on middle men and the primary benefit is to farmer since he will get fair price on per with market.Farmers will get some relief than the present but they won't get rid of all the problems since the agrarian unrest is not only linked up with middle men but also depends on erratic monsoon,lack of mechanization and scientific management,degraded land due to green revolution,irrigation facilities,illiteracy of farmer and disguised unemployment.With the latter reasons productivity is getting effected and by the former reason remunerative price rate is getting effected, all put together breaking the backbone farmer.
This middle men layer consists of small money lenders(costliest credit) and procurement agents(in some villages money lender himself is a procurement agent) . In India we have nearly 6 lakh villages and each village contains 5-6 middle men on average and each person would provide direct employment to max of 10-15 members on seasonal basis,then the total number put together 5.76 crore people.Out of this people the direct labor to middle man are also agriculture labor,they would get their work farm land, but the remaining 36 lakh people will feel the worst impact of the policy for initial period, later on they will find different work depending on their skill set(most of these people migrated to urban ares in case of China).
China and many other third world countries have opened up their market many years before.we can well compare ourselves with China in this regard since it is issue regarding consumer market,both countries have large consumer market. Any company would like to stay in larger markets either foreign or domestic person, this made China to reap the FDIs successfully.China opened it's economy in 1992 and utilized the technological advancements and Forex brought in by foreign players and emerged as major exporter in retail market.The status of international standard to their consumer product is gift given by healthy competition between foreign and domestic corporate people.China gradually lifted it's cap on FDIs to zero.Even after 20 years of it's reforms still local entrepreneurs are dominant with large market share than foreign players like Walmart and Tesco.
Walmart was rejected by local retailers in some cities of USA. Entering into any city of USA is very possible to Walmart since it is domestic player in USA, but same thing is not possible in case of India since walmart or any other foreign company not belongs to the category of domestic player.It has limitations and permissions to expand it's business as per proposed FDI norms.
Responses from different sections of society:
Strong protesters:
BJP: They are totally against to this policy since:
1) Initiator is Congress
2)Highly interested in protecting corporate interests.
3)Part of vote bank politics(Interested in mid term elections).
Mamata Banerjee: Against to it, she became so popular on this issue by posing instability to govt.
It would be highly difficult to analyze her stand because her interests and words change from time to time.Her party's( trinamool congress) election manifesto supported this move.When a journalist questioned about the manifeso she replied him that "it is a print mistake".
Communist parties: Opposing the move.
They interested in govt to handle everything.they don't like if anything going out of govt clutches as it is their basic ideology.This principle will work when we have Prime Minister to an attender(total of executives(these people are main) and bureaucrat) with optimum level of honesty and integrity which we can't expect at these times.
Regional parties: some are supporting(generally part of UPA ),some are opposing (generally from NDA except Trinamool Congress).
Strong supporters:
1)Most of UPA members since they are coalition partners of congress
2)Majority of economists
The reasons are only political and vote bank politics.Frankly speaking we have some politicians with cabinet rank in many states who don't know even how FDIs benefit in reducing the burden of Current deficit in the shorter run and trade deficit in the longer run.This is the sorry state of our political affairs today.Under this kind of circumstances we can't expect smooth process of these kind of policies.
FINALLY THE SUCCESS OF THIS MOVE IS POSSIBLE ONLY WHEN IT SERVES THE PURPOSE OF MANUFACTURING INDUSTRY BY DEVELOPING FOOD PROCESSING INFRASTRUCTURE .STRONG DEDICATION IS REQUIRED FROM GOVT SIDE TO PERSUADE INTERNATIONAL PLAYERS AND BRING TO INDIA WITHOUT CHANGING MENTIONED RESTRICTIVE PROVISIONS.
Sources:
http://www.thehindu.com/business/Economy/chinese-retailers-give-global-giants-run-for-money/article2681679.ece?textsize=small&test=2
http://www.thehindubusinessline.com/opinion/article3946087.ece
http://www.thehindu.com/news/national/mamata-other-states-will-toe-west-bengals-line-on-fdi/article3942978.ece
http://www.thehindu.com/opinion/op-ed/article3897906.ece
http://swaminomics.org/?p=623 
India’s retail sector is already opened for indigenous operators(major participants being reliance,Aditya Birla group,Tata group,Pantaloon Retail,K Raheja Group,Piramal Group,Bharti-Walmart(a joint venture)). There is no logic in keeping foreigners out. Entry of foreign players means more competition, improved supply chain efficiencies and better offerings for consumers and, most likely, better prices for farmers. This concept already proved in the area of telecom and software sectors successfully . In telecom sector the entry of Vdafone didn't end the business of BSNL,Tata and other perhaps Indian players are sharing major market Airtel being predominent. In software services the entry of Microsoft,IBM and many other foreign companies didn't end the business of Infosys,TCS and many other Indian companies instead this sector has created hundreds of small and marginal s/w companies,became financially good source of employment to lakhs of people and also emerged as one of the major source to raise forex to Govt of India.Same hungama conducted by the then contemporary opposition to curtail entry of service sector in 1991,but ultimately time proved what is right and what is wrong.
Same concept would definitely successful in retail market also if the proposed FDIs bill is implemented with strong determination. Let us see the features of proposed bill and their +ve and -ve sides.
Some Important feature:
1) FDIs can not move into any prat of a state without prior-permission of state govt even though the central govt permitted it.
2)Can't be accepted in any city where population is less than 10 lakh.
3)Even in cities with more than 10 lakh population also foreign players needs permission
4)50% Investment has to be spent on development of infrastructure.
5)3 years lock-in period.(Govt is trying to reduce this,but it should not be reduced at any cost)
Indian govt has ensured enough provisions to safeguard the interests of kirana shops, farmers and small manufacturers by imposing conditions (on foreigner retailers) such as domestic sourcing norms, entry at the discretion of States and permission to operate in cities with a population of 10 lakh or more. Investment has to be made to create back-end infrastructure such as cold storage chains(crucial for food processing sector) which would be a great help for farmers belongs to horticulture and vegetable growers.In fact Govt already allowed 100% FDIs in food processing and cold-storage but this scheme didn't attract investments since retail sector is totally closed.
So, with the above restrictions on one side and the competent Indian corporate on the other side it would hardly possible for any foreign player to monopolize the market.It only can give good competition to Indian players and will reduce the gap between production cost and consumer market cost of commodities.To sustain this competition all these companies has to start procurement directly from farmer by bifurcating middle men(who are one of major exploiters of farmer). Here the worst impact is on middle men and the primary benefit is to farmer since he will get fair price on per with market.Farmers will get some relief than the present but they won't get rid of all the problems since the agrarian unrest is not only linked up with middle men but also depends on erratic monsoon,lack of mechanization and scientific management,degraded land due to green revolution,irrigation facilities,illiteracy of farmer and disguised unemployment.With the latter reasons productivity is getting effected and by the former reason remunerative price rate is getting effected, all put together breaking the backbone farmer.
This middle men layer consists of small money lenders(costliest credit) and procurement agents(in some villages money lender himself is a procurement agent) . In India we have nearly 6 lakh villages and each village contains 5-6 middle men on average and each person would provide direct employment to max of 10-15 members on seasonal basis,then the total number put together 5.76 crore people.Out of this people the direct labor to middle man are also agriculture labor,they would get their work farm land, but the remaining 36 lakh people will feel the worst impact of the policy for initial period, later on they will find different work depending on their skill set(most of these people migrated to urban ares in case of China).
China and many other third world countries have opened up their market many years before.we can well compare ourselves with China in this regard since it is issue regarding consumer market,both countries have large consumer market. Any company would like to stay in larger markets either foreign or domestic person, this made China to reap the FDIs successfully.China opened it's economy in 1992 and utilized the technological advancements and Forex brought in by foreign players and emerged as major exporter in retail market.The status of international standard to their consumer product is gift given by healthy competition between foreign and domestic corporate people.China gradually lifted it's cap on FDIs to zero.Even after 20 years of it's reforms still local entrepreneurs are dominant with large market share than foreign players like Walmart and Tesco.
Walmart was rejected by local retailers in some cities of USA. Entering into any city of USA is very possible to Walmart since it is domestic player in USA, but same thing is not possible in case of India since walmart or any other foreign company not belongs to the category of domestic player.It has limitations and permissions to expand it's business as per proposed FDI norms.
Responses from different sections of society:
Strong protesters:
BJP: They are totally against to this policy since:
1) Initiator is Congress
2)Highly interested in protecting corporate interests.
3)Part of vote bank politics(Interested in mid term elections).
Mamata Banerjee: Against to it, she became so popular on this issue by posing instability to govt.
It would be highly difficult to analyze her stand because her interests and words change from time to time.Her party's( trinamool congress) election manifesto supported this move.When a journalist questioned about the manifeso she replied him that "it is a print mistake".
Communist parties: Opposing the move.
They interested in govt to handle everything.they don't like if anything going out of govt clutches as it is their basic ideology.This principle will work when we have Prime Minister to an attender(total of executives(these people are main) and bureaucrat) with optimum level of honesty and integrity which we can't expect at these times.
Regional parties: some are supporting(generally part of UPA ),some are opposing (generally from NDA except Trinamool Congress).
Strong supporters:
1)Most of UPA members since they are coalition partners of congress
2)Majority of economists
The reasons are only political and vote bank politics.Frankly speaking we have some politicians with cabinet rank in many states who don't know even how FDIs benefit in reducing the burden of Current deficit in the shorter run and trade deficit in the longer run.This is the sorry state of our political affairs today.Under this kind of circumstances we can't expect smooth process of these kind of policies.
FINALLY THE SUCCESS OF THIS MOVE IS POSSIBLE ONLY WHEN IT SERVES THE PURPOSE OF MANUFACTURING INDUSTRY BY DEVELOPING FOOD PROCESSING INFRASTRUCTURE .STRONG DEDICATION IS REQUIRED FROM GOVT SIDE TO PERSUADE INTERNATIONAL PLAYERS AND BRING TO INDIA WITHOUT CHANGING MENTIONED RESTRICTIVE PROVISIONS.
Sources:
http://www.thehindu.com/business/Economy/chinese-retailers-give-global-giants-run-for-money/article2681679.ece?textsize=small&test=2
http://www.thehindubusinessline.com/opinion/article3946087.ece
http://www.thehindu.com/news/national/mamata-other-states-will-toe-west-bengals-line-on-fdi/article3942978.ece
http://www.thehindu.com/opinion/op-ed/article3897906.ece
very good...
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