Why NO to FDI - An Introspection

While there has been a sense of excitement amongst common urban Indians about FDI, foreseeing the arrivals of Walmarts and Starbucks, there is a part of unheard or unseen India which is living in apprehension about the impending policy change. Here is why impact on the organised players. The overall size of retail market in India at present is estimated at ` 5,88,000 crore of which, the unorganised portion of the market is worth 5,83,000 crore and the share of organised portion of the market is 5000 crores. The unorganised market provides the second largest employment opportunities to 3.95 million people (first being the agricultural sector). It is argued that opening the retail sector will have an impact on sales in the unorganised sector. As a result of this, employment provided by the unorganised sector will be affected. It is reasoned that by reducing the number of intermediaries, organised retailing will lead to some job displacement.

Limited Employment Generation It is said that FDI might provide employment opportunities, but it is argued that it cannot provide employment opportunities to semi-illiterate people. This argument gains more importance because in India, large number of semi-illiterate people are present.

Fear of lowering of prices: There is a fear that allowing FD1 in retail would result in lowering of prices, as FDI will bring in good technology, supply chain etc. If prices are lowered, then it will lower the margin of unorganised players also. As a result of this, the unorganised market will be affected. This in turn will have an impact on the employment opportunities provided by the unorganised market.

FDI in retail will drain out the country’s share of revenue to foreign countries, which may cause negative impact on India’s economy.

Fears that domestic organised retail sector might not be competitive enough to tackle international players might not only resulting in loss of market share for them but in closure of their units.

There is a possibility of small business owners and workers from other functional areas, as lot of people are involved in unorganised retail business, may lose their jobs.

Small retailers and other ‘Kirana Stores’ may close down.

Supermarkets will establish their monopoly in the Indian market. Due to supermarkets fine tuning and higher accessibility they will be able to buy goods at lower prices and therefore will be able to sell at lower prices to consumers. This will result in closing of many small retailers.

Though Government has stipulated that 30% procurement should be from Indian sources, this may get diluted over the years. The remaining 70% procurement from cheaper countries will make the people run towards that stuff and the 30% supply from Indian small industries will have their own death, unable to compete with low price Chinese goods.

There has been a lot of debate on both public and private forums on the possible impacts of India’s FDI policy in retail. This is the largely viewed as the first step towards the linearization of the Indian retail industry. Through this initiative, the country is slowly becoming an investor-friendly market. Foreign players entering into the market are expected to bring in world-class expertise in both frontend and backend processes. While there are some very promising developments expected in the infrastructure and employment arenas, some of the negative effects such as the displacement of traditional supply chain and eradication of small retailers cannot be ignored completely.