Tuesday, December 4, 2012

FDI in Retail Today

FDI in retail is being discussed in Lok Sabha today. The retail sector,one of the largest contributors to the GDP is one of the main topics of discussion currently. Should FDI, also known as the 'sunrise' sectors of Indian economy allowed in retail? This topic continues to be a rage in among the academicians and researches all over the world.

To begin with, Indian retail landscape reveals to be made up of two sharply contrasting segments - traditional small stores and big chain outlets. It has been confirmed that the Indian retail sector comprises mostly of local 'kirana' shops that being compared with the retail sector in other countries that have low labour productivity. One of the main reasons that attribute to this are low skilled and inefficient supply chain processes. Other than having high labour productivity, big chain outlets are more  organized and result in creating more jobs and providing employment to the population in the sector. One of the main conerns that SME businesses in India has is that they might not be at par when the agressive global players arrive in India whose main motive is to capture the Indian market by reducing the cost of goods resulting in a direct impact on the profit margins. On the other hand, government goodwill for SME businesses far outweighs this downside as we look at it today. The investment climate with its complex tax structure and legal framework penalizes large stores that operate across different states while SME businesses are more relaxed in that aspect. Although the cost of goods is lower for large chains, the profit margins of small retailers is higher.

When it comes to challenges being faced , one of them is establishing global quality standards.Globalization is bringing new challenges to retail-quality-control. With the globalization of production, supply- retailer chains, it is vital to ensure the quality and safety of the products.To be able to participate fully in global markets, exporting countries in return have to acquire the the capability to adhere to globally accepted standards in terms of quality, safety, health and environment.

Once FDI is allowed in retail, the better buying experience, product choice, quality, adherence to labelling laws are imperative to get the support of Indian consumers. The huge Indian consumer market should not turn into a ground for sub- standard products. It is about time that stringent quality standards emerge.

December 5 is also when the matter will be put to vote in both houses of the parliament. Emphasizing that FDI in retails would impact shop owners, farmers and small scale industries, Mayawati appealed to the Central Government not to implement the policy in haste. She said that the Congress- led United Progressive Alliance government needs to consider the adverse effects of allowing FDI in retail. According to her, a good FDI deal should be to allow value addition to local produce, which could then be sold in local and overseas markets. "Allowing FDI into India without any condition will not be good for the economy. India needs to identify the sectors in which FDI should be allowed."



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