The pros and cons of FDI in retailing

The Cabinet has approved 51 per cent FDI in multi-brand retail, a decision that will allow global mega chains like Wal-Mart, Tesco and Carrefour to open outlets in India.

The Cabinet also increased the foreign investment (FDI) ceiling to 100 per cent from the present 51 per cent in single-brand retail.

The following are the main issues raised by those in favour of foreign equity in multi-brand retailingand those opposed to it:

Those against:
- It will lead to closure of tens of thousands of mom-and-pop shops across the country and endanger livelihood of 40 million people
- It may bring down prices initially, but fuel inflation once multinational companies get a stronghold in the retail market
- Farmers may be given remunerative prices initially, but eventually they will be at the mercy of big retailers
- Small and medium enterprises will become victims of predatory pricing policies of multinational retailers
- It will disintegrate established supply chains by encouraging monopolies of global retailers

Those in favour:
- It will cut intermediaries between farmers and the retailers, thereby helping them get more money for their produce
- It will help in bringing down prices at retail level and calm inflation
- Big retail chains will invest in supply chains which will reduce wastage, estimated at 40 percent in the case of fruits and vegetables
- Small and medium enterprises will have a bigger market, along with better technology and branding
- It will bring much-needed foreign investment into the country, along with technology and global best-practices
- It will actually create employment than displace people engaged in small stores
- It will induce better competition in the market, thus benefiting both producers and consumers

Cabinet clears 51% FDI in multi-brand and 100% in single-brand retail

Paves way for global chains to open mega stores in 53 major cities

New Delhi, November 24
The Union Cabinet today cleared 51% foreign investment in multi-brand retail and 100% in single-brand retail, throwing open the country’s estimated $590 billion (Rs 29.5 lakh crore) retail market to global supermarket giants, despite differences between the UPA allies on the issue.
It also approved the Companies Bill, 2011 that seeks to tighten norms on insider trading, prevent corporate frauds and introduce new concepts like class action suits. Once approved by Parliament, it would replace a 55-year-old old legislation.
The decision on FDI, taken at a meeting of the Cabinet presided over by Prime Minister Manmohan Singh, will pave the way for global chains like WalMart, Carrefour and Tesco to open mega stores in 53 major cities. Currently, India allows 51% FDI in single-brand retail and 100% FDI in the cash-and-carry format of the business.
Besides the main Opposition BJP, the Left and UPA partner Trinamool Congress along with Congress ministers Veerappa Moily and Mukul Wasnik had opposed the FDI proposal saying it could create major problems for the country.
"We will make a statement in Parliament," is all Commerce Minister Anand Sharma said after the meeting, given the sensitivities involved. But some ministers and officials confirmed the clearance to FDI.
While the BJP feels that the FDI in retail would lead to unemployment, the Left parties feel it would lead to further inflation and price rise. However, the government is of the view that this biggest reform in years could boost sorely-needed investment in Asia's third-largest economy.
Sources said there are also some caveats proposed in the policy, notably to protect the interests of mom-and-pop shops, farmers and small and medium enterprises. There are some 40 million people involved directly in running these neighbourhood kirana stores.
Earlier, a panel headed by Cabinet Secretary Ajit Kumar Seth had recommended 51% FDI in multi-brand retail but with certain riders.

The panel had suggested that at least 50% of the investment and jobs should go torural areas. Besides, entities with FDI should source at least 30% of their requirements from the micro, small and medium enterprises sector. A foreign player would also have to commit an investment of at least $100 million.

Other recommendations included allowing such mega stores to sell non-branded items. Such entities would be allowed only in towns with a population of over 10 lakh.

In another decision, the Union Cabinet also cleared the Companies Bill, 2011 which, once approved by Parliament, will replace a half-a-century-old Act. The Bill, which has already been vetted by the Parliamentary Standing Committee of Finance and also by different ministries, seeks to update company law in line with the best global practices.

The Bill has introduced ideas like corporate social responsibility (CSR), class action suits and a fixed term for independent directors.

Among other things, it also proposes to tighten laws for raising money from the public. The Bill also seeks to prohibit any insider trading by company directors or key managerial personnel by treating such activities as a criminal offence.