Saturday, August 12, 2006

Should we allow FDI in retail

Our retail sector is worth $180bn and only 3% of it is organized.

Benefits of retail
1. Better Procurement
2. Efficiency in the Supply of goods--better prices
3. Competition - Domestic players have to compete- again better prices4. Exports- The most Impt. one.

Walmart is half our country's GDP (if u takes GDP as $770 billion) and that's just one co. The point about our retail sector (worth $180 bn) and Wal-Mart’s Sales is invalid. Why?

1. The price of an avg. item in the U.S. cause of PPP would generally be higher than what it is here.
2. Even if the volume of trade is higher or avg spending per household as a %age of spending is higher the anomaly of the high sales figure would still rise cause again of the PPP argument.

Economies have to move/change and a transition is inevitable. The argument of the Kirana shop closing down and local players bearing the brunt the most at least to me, today, would be misplaced.

In India FDI is almost synonymous with Wal-Mart. And again we are told that it would create and unfair environment. In the following write up let’s contest those arguments.

The argument of a co. by its sheer size would/should hamper our economy--retail model in specific, is a misplaced argument. Unless policy issues are not in place. I'll further elucidate.

"Our total retail sector is worth $180bn where as the sales of WAL MART this year is $315.654bn. No no.... we can’t compete with them"

Yes, the Wal-Mart’s with their might would exercise a better bargaining power like you mentioned. But here again what I am contesting is that taking the annual sales of Wal-Mart which procures in large amounts from China, the cost of which again on a PPP basis would be much lower and the sales of which would be much higher on a PPP basis in the U.S. and not necessarily in terms of the actual value of goods, which means that the revenues would be inflated. With all their might Wal-Mart would have to sell at prices prevailing here and adjust costs/revenue structures to what's best suited here.

From another source"It is interesting to note that the Left approach to the issue broadly follows the Chinese model. China first allowed FDI in retail in 1992. The initial FDI cap was 26 per cent. It took China 10 years to raise the limit to 49 per cent. The 100 per cent foreign-owned retail stores were allowed only from 2004"

Instead of arguing for the domestic industry, and to give them a chance to compete, the more appropriate argument is give retailers a fair chance to compete. Period. Irrespective of foren on desi.

Remember the swadeshi arguments about don’t let the Phoren Players to enter our markets as Domestic Industry would perish.
Cause the Japanese would bring their machines (capital intensive processes) and the Americans would bring their computers(Technology) and since our economy till then was labour driven, so we would lose jobs and people would lose a source of income.

Remember arguments of -don’t bring the Pvt sector in agriculture as millions of farmers would be displaced because they would be rendered ineffective. But ironically Dairy and food processing and cold storage and areas that are left untouched this is where a lot of Pvt players see an opportunity.

To put it in terms of the lay person weren’t we told that the GM’s, the IBM's and Honda's of the world would capture our market and it would be the beginning of Imperialism.
Has it happened? Do you think we would have had a Pulsar, Ranbaxy , indica if it weren’t for compt.? Have the Infosys,Wipro, TCS perished under the onslaught of the IBM's and the Microsoft's?
Infosys Chairman, NRN has gone on record saying that the IBM's of the world only made them stronger. So we have a Pulsar which is sold in other BRIC economies, a scorpio which is sold in Mexico, a Indica which is sold in the UK, albeit under the Rover brand.

We end up mentioning the same arguments against FDI in retail.

Look at the Wal-Mart’s as a huge source of Exports like the Chinese have. Retailers source 60$ bln in terms of goods from China. Get them to invest in areas that have been left untouched. They would bring their proccess/practices and use it to you advantage. It would keep the domestic players in check.

There is no denying the FDI in retail is good. But the retails sector and how it benefits the mass at large is a function of good policy. The retail sector would go for a toss even if FDI wasn’t allowed. Then how beneficial it ends up being is a Function of a good policy irrespective of FDI or not.