Retailers, trade associations divided over 51% FDI proposal in retail industry

The organized retail trade in India is awaiting the cabinet nod on 51% Foreign Direct Investment (FDI) in multi-brand retail, based on recommendations made by the committee of secretaries (CoS). The government, however, has adopted the go slow approach for the opening of multi-brand retail for FDI. But the domestic retail players and trade associations are still divided on the issue. Prominent domestic players are demanding to open the multi-brand retail trade for FDI as investment will be used to build scale, reduce supply chain cost and improve efficiency in production.

The domestic retail player Kishore Biyani, founder and group CEO, Future Group is of the view that the FDI in retail will provide the much needed push to Indian retail industry by foreign capital, and the sector can maintain good pace of growth for coming 15-20 years. The FDI will help to break demand and supply mismatch by improving infrastructure and efficiency. 

The CoS has recommended that around 50% of FDI should be devoted for developing back-end infrastructure which is viewed as a speed breaker and main reason of commodity price fluctuations. As per the FICCI Secretary General Rajiv Kumar, FDI in retail will also help smaller producers, suppliers, farmers as well as consumers, he said ‘the entire chain, from farm gate to consumer stands to benefit with FDI. Farmers will get more remuneration, while consumers will get better prices for products.’

The FDI is also expected to push India’s exports. The China witnessed growth in exports after opening its retail sector for FDI. However, trade bodies like the Federation of Retail Traders Welfare Association (FRTWA) and Confederation of All India Traders (CAIT), are not in favor of opening retail sector for FDI, as it will affect the small kiranas and retailers hence affecting the employment scenario in sector. The Indian retail industry is mainly dominated by the unorganized and small retailers and big players like Wall Mart and Carry four are expected to wipe out the small retailers.

However, with reference to China’s experience, Rajiv Kumar said, ‘with FDI implementation, employment doubled in China and quadrupled in Thailand. Productivity also increased. It will create more jobs in India.’

On the same time, the industry experts and analyst are of the view that the opportunities made by 51% FDI in single brand retail and 100% in wholesale cash and carry business is not fully exploited. Since 2006, only Rs 306 crore of foreign investment has come into the Indian retail sector. The experts have the view that the role of government will be vital in the implementation of FDI into sector, but before that, industry needs to identify whether the need for FDI is driven by capital or capacity.

Industrial bodies are hopeful that a concrete decision will be taken by the cabinet in 3-6 months. The change in Indian consumer preference and demography structure, along with the increase in the income, Indian retail industry has become attractive destination for investment.