In the retail world, countries with large informal markets like India are seen as favorable investments for new market entrants because of the informal market’s dominance. In India, where 99% of grocery sales occur in the informal sector, any growth in grocery market share faster than market growth that is experienced by formal retailers will certainly be at the cost of and losses in the informal sector.
Even if it is late, producers and manufacturers should first be given an opportunity by creating adequate irrigation, roads and logistics infrastructure including decentralized modern storage facilities to embrace the competition. In absence, only big money and deep pockets can make money.
Am not against Retail FDI, its just that this government decision is grossly unfair for Indian producers and retailers who inspite of years poor infrastructure and logistics support – for which they have been paying taxes for years – have been trying to provide best possible consumer experience within their means.
Again, the stupidity all around is that FDI is viewed with strong beliefs and perceptions of being good or bad for economy.
The ground reality is different. For that genesis of the policy makers is to be checked. Most planning commission members, finance ministry bureaucrats and MMS subscribe to superficial concept that stabilizing rupee is key to fiscal management including inflation. Again most of them have had IMF and WB stints where developing economy nominees are impressed up on to keep currency stable. This is easily achieve by FII and FDI inflows.
Herein lies the problem. The gap between imports and exports, with imports dominating, leads to rupee depreciation which upsets fiscal deficit as most developing nations are net importing countries and it adds inflationary pressure.
The harder way to address this ‘net import gap situation’ is to strengthen manufacturing and services export sector. This in medium to long term would ensure a rise in baseline of net forex inflows, bringing down reliance in FII and FDI. This can only and only be achieved by country investing in road, rail, port, communication, water supply, storage and power infrastructure.
Even after the overrated 1992 budget, the country remained clue-less till year 2000. Between 2000 and 2004 huge number of road, rail, port, SEZ, storage and power projects were started. Communication including internet penetration was well achieved. Though it happened along with related corruption, the net real benefit gave a stable boost to the economy with forex reserves at record high since independence.
Post 2004, all infrastructure projects came to stand still and there was sudden influx of FII money (which is generally contrary when infra spend touches near zero in any country). Markets – both stocks and bullion – scaled record high, which was very predictably not sustainable even without 2008 global crises.
Consequently and again repeating – predictably, lead to gradual withdrawal of FII money leading to rupee depreciation. Blaming vodafone tax change (which was step in right direction and UK also followed the suit in charging voda in other tax evasion case there) and coalition alliance partners does not change the ground reality that there has been almost a decade of absence in net infra spend.
Under-achievement in creating adequate infrastructure, rampant corruption in every government venture (adventure), gross mismanagement of economy and consistent devaluation of rupee (which greatly impacts India as it is net importing country), has had a very negative impact at grassroot level – spiralling production and labour costs. The most immediate impact and victim is domestic industries – this more of a policy deficit than industry cyclical phenomenon.
In this scenario, opening up FDI in Retail, leaves already vulnerable domestic manufactures and related ancillary industries more to mercy of likes of Wal-Mart whose annual turnover is more than half of India’s GDP. And with budget of $400 million (Rs. 20000 cr.) for out-of-court settlements (presumably benefits from violation of laws exceed settlement costs), am sure fair-play is out of question.
Again, am not against FDI in Retail. But govt. needs to do its due in infrastructure sector to allow a fair play. Classic example is Reliance and Future Groups’ restricted expansion plans. They are unable to achieve any further expansions (even when they appear making right noises in media). The biggest hurdle is infra for their growth.
Again so far as producers and manufacturers are concerned, in absence of proper infra and decentralized storage facilities, they are always at mercy of mega-monopsony-corporations, AS THEY DO NOT HAVE ACCESS TO RIGHT INFRA for transportation, marketing and storage. Obviously, no option for domestic enterprises always works to the advantage of mega-corporations.
After paying taxes for years, had they been given required infra support, probably, India may seem less attractive destination for foreign investors. Which works to the advantage of domestic firms, adding support to GDP and creation of capacities for domestic and exports.
As a normal young consumer, I have strong desire for being pampered. At the same time, I do not wish to allow opening flood-gates of massive retail related imports and genetically modified untested seeds which no one can continue to ignore.
Research and test the ecosystem first and then draw your conclusion on FDI in Retail – which happens to be just a part of the ecosystem but brings along an irreversible permanent change.
[The blog originally appeared on September 24, 2012 at my old blog site here: http://ajayrdave.blogspot.com/2012/09/fdi-in-retail-vs-fair-play-extended.html]