Tuesday, 9 October 2012

India debates influx of big supermarkets

Feelings are polarized in India about foreign direct investment (FDI) in multi-brand retail trading. Alok Gupta from CI member Consumers Forum in India gives five reasons why FDI in the retail sector is good for India and its consumers.

1. Expansion of the market is good for consumers 

Our experience from the entry of Indian companies such as Reliance, Airtel and Big Bazaar or of multi-national companies such as PepsiCo, Adidas, etc. into the retail market has been excellent. These players have increased customer’s choice and competition.

Availability and choice under one roof and discounts on MRP were unheard of prior to their entry some eight years back.

With foreign direct investment (FDI), globally-prominent and popular single-brand retailers like IKEA, Apple, Nike and multi-brand retailers such as Walmart (USA), Tesco (UK), Metro (Germany) and Carrefour (France) will be able to open up shops here and, as a result, introduce world-class products to Indian consumer. Also it will give Indian products the opportunity to reach global retailers (and buyers) for their marketing.

2. A growing Indian economy needs a growing retail sector   

The retail sector of India is vast, and has huge potential for growth and development, as the majority of its constituents are unorganised.

The retail sector of India handles about $250 billion every year, and is expected to reach $660 billion by the year 2015. The organised retail sector of India is set to grow  at the rate of 15-20% every year, and will reach the level of $100 billion by the year 2015.

It is noteworthy that the retail sector of India contributes about 15% to the national GDP, and employs a massive workforce, second only to the agriculture sector. India's growing economy with a rate of approximately 8% per year needs a matching expansion of the retail sector.

3. A strong retail sector will strengthen the Indian economy   

FDI in multi-brand retail notification states that foreign investors should make a minimum investment of $100 million, 50% of which should be invested in back-end infrastructure. 

It states that investments made towards processing, manufacturing, distribution, design improvement, quality-control, cold chain, warehouses and packaging constitute ‘back-end’.

Best practice of the multinationals in processing, cold chains, transportation and the like can be emulated by other players. This investment would strengthen the Indian economy and provide opportunities for consumers.

4. Promote acceptability of Indian products and services abroad and further investment in other sectors       

India’s opening up of its retail and other sectors will be matched by a similar response from other nations to Indian products and services.

Besides, it will boost India as a safe and  progressive economy. We need a revival in investor confidence domestically and globally.

This will integrate the Indian economy with the global economy and India’s success will be of interest to the rest the world.

5. The Government’s right to intervene   

Multi-brand retail trading is classified as a service and, therefore, covered by the General Agreement on Trade in Services (GATS). India has not undertaken any commitments in this area under GATS.

The Bilateral Investment Promotion & Protection Agreement (BIPA) was a post-establishment investment agreement. This implied that once an investor entered the country, that investor must be treated the same as a domestic investor unless the limitations to national treatment were clearly spelt out at the pre-establishment stage.

The FDI policy is a pre-establishment instrument and, therefore, not covered by BIPA. However, the Indian Government retains the right to impose necessary conditions in case certain malpractices occur in the future.

1 comment:

  1. The Indian Government just needs to be more vigilant as to what measures to be used to see that if it fails, then what? How to safe guard the interest of the Indian Consumers?