I was amazed at the ruckus created after the Union Cabinet decided to allow 51 percent foreign direct investment (FDI) in the retail sector. An objective, non-ideological and apolitical view will surely show how hollow the arguments of the opposing parties are. Everyone talks of front-end or kirana outlets in the entire chain of retail business. How about the back-end operations? We are poorly organised in procurement, storage and supply chain. Inventories pile up but distribution does not happen on time and thousands of tonnes of food grains and other eatables rot because of ill-equipped storage facilities, especially those run by the government. We do not have enough capital or technology in these areas. That is a fact. Small to medium farmers are generally squeezed in price by middlemen. There is no drive for quality of the produce. FDI can not only bring capital but also the knowhow and processes to address these issues.
A bogey is being raised by many that FDI would damage or kill millions of small and medium traders. Similar noise was heard when business houses were allowed to enter the retail segment. The reality is that the traders continue to thrive. They have also grown in numbers. A big retail store in Pune was recently selling a kg potato, tomato and onion at just Rs24! This was happening at a time when food inflation was still running high. The kirana shops will always survive and thrive. This is because of our habit of buying smaller quantities, albeit more frequently. We believe that anything we buy now is fresher than what we would store in our home refrigerators.
Also, we have a big population in the small income group. These families will always go to the small traders in the neighbourhood, as the owner give them a credit up to 30 days, although by charging a higher price and making additional margin from such credits. FDI in retail will trigger a fall in food prices. That will not only benefit consumers but also kirana stores.
About a decade back, nobody wanted to buy a house in the fringe areas like Hinjewadi. Now, such areas are hot destinations. New companies and educational institutions have come up in these areas. But what has made these a happening place is the presence of big retail stores and malls. Thus the FDI will also help in the development of peripheral or suburban areas of cities and rural areas.
Originally printed in www.SakaalTimes.com (December 22, 2011)