Saturday, November 26, 2011

Retail and FDI

India is looking at allowing Foreign Direct Investment (FDI) in retail markets. India also hopes that this would lead to creation of at least 4 million jobs, and the investment has to be to the tune of a minimum of 100 million US $. So, with this India expects huge inflow of foreign retail marts to start huge stores across the country-- from Wal Mart to Burger King, everyone will be looking into tapping the 600 billion $ Indian retail market ! Although I am personally in favor of opening up the Indian market, certain things seem to hit hard the Indians. And I am afraid of this one too.

Let us start with the first assumed benefit: 4 million jobs in the country, with possibility of another 4- 6 million jobs in allied services. Well, but how many will lose jobs because of this? That one is answering. Few years back, when Pepsi and Coca-Cola where allowed into the country, initially they were allowed to sell drinks in a bottle of 500 ml or more. Now, that meant, keeping the local companies live, including many who were making cool drinks from their own homes, and were selling in the local market in container bottles of 180 ml and 300 ml. Then the law allowed these giants to sell 180 ml and 300 ml bottles as well. Suddenly, the home based entrepreneurs and small vendors vanished! Even my own brother lost business! When I asked him three years ago why his business was going down, he said this as the reason. Now, his business is fully closed, and is unemployed. I do not know how many extra people Coke or Pepsi employed. But I know that some people lost their livelihood too.

During my trips in Eur0pe and the U.S. I have heard some of my friends saying how small shops cannot do business because everyone goes to the big shops, the super-markets to get things cheap, make their own choice and ultimately....leaving the small time vendors heart-broken. I am apprehensive of this move of the government.

The second presumed benefit is, if more money flows in, then inflation would come down! That is really funny. How much of inflation came down with the first round of reforms in India? 3 - 4 percent? But then it went up again. It is now hovering around 10-11 % Cost of basic goods have gone up. Gone up skywards....

What we need today is agricultural reforms--a second green revolution, that benefits both the farmer and the consumer. There are too many middlemen surviving on the farmers' plight and consumers' woes. This must end. Now.

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