FDI in retail chains

In any functioning democracy, the interest of 7% of total working population is a big electoral factor. The current hot topic regarding FDI (Foreign direct investment) in retail sector concerns with the interest of above mentioned 7% of population who are employed in trade sector and generates 14% of total GDP (Gross domestic product). Our effort will be here to analyze the consequences of such policy in Indian economy.

The trade sector in India can be regarded as unorganized sector because 98% of total trade volume takes place at very small scale which neither can neither regulated nor taxed because of its smaller size and mode of operation. Usually, they perform very locally and owned by private families.

As the trends across globe suggests the entry of retail stores wipe out these small players from the market and set up a competition between few giants. In this way, it will suck the job of above 7% of total working population. As a result, either they will be forced to go for sectorial shift or will be left in autarky to die.

This is the major concern, which is quoted in media to advocate in favor of existing trade sector in India. However, it would be unfair if we will not analyze the possible advantages. In a sense, a fear about foreign investment inherits from the colonial past of the country. If India really likes to claim itself as engine of global economy it has to be efficient at global standards.

Indian grocery supply-chain network is very skewed and inefficient. As a result, India has highest perishable wastage in the world. It should also be noted that India is globally infamous for its malnourished population. The entry of these large chains will make the procurement, processing and distribution of perishable goods more efficient.

During this year, we have seen the 700% change in prices of perishable goods in the journey from producers to consumers in case Tomato and Onion. Hopefully, this situation will improve after the entry of retails chains due more intense competition between players at macro level. Due to their organized structure, Government can easily regulate the prices offered to the farmer, which will improve the chronic situation of farmers. In case of access production, they can force these chains to buy stuff from farmers and store it. In contrary to current small players they can afford such risk due to better infrastructure and market strength.

Moreover, the sectorial shift of trading sector will be a slow process so it won’t create a kind of panic in those 7% working population. Last, but not the least it will increase the revenue generation of the government. Not only this, it will check the menace of local holders who create artificial demand in smaller markets. Finally, it will also check the cheap talks under asymmetry of information with local vendors. Consumers will get proper information about the product they buy and producers will get fair deal for the product they sell. At last, we have to get rid of hesitant mentality to enhance the efficiency for the better future of economy.