A New Delhi Counter: Uproar over 51% FDI in Indian Retail

(We're pleased to feature another guest post from our roving reporter, Ross Mulkern)

Over the past week or so, the issue of Foreign Direct Investment (FDI) in Indian retail has become something of a hot topic - encapsulating, as it does, many of the prominent arguments both for and against strictly localised procurement.

I discussed the issue at large last week, with regards to an article by South African economist Jasson Urbach, in which he asserts that “buying local” can, in fact, be harmful to local economies, inflating prices, cutting jobs and possibly resulting in an inferior end product. This is clearly not a sentiment which has easily taken root in India, however, where the decision to fling open the doors of the region’s $450 billion retail market to the likes of Wal-Mart has caused a furore at parliamentary level.

Indeed, so unpopular is the bill, which Commerce and Industry Minister Anand Sharma claims will “immensely help Indian farmers and create jobs in the agricultural and food-processing industry," that there was talk of opposition parties organising large-scale street protests, and pushing for an “adjournment motion” to halt the progress of the bill. Then this week the government confirmed it was suspending the reform – temporarily at least – to allow further debate.

It’s hardly a mystifying reaction on the part of the nay-sayers; over half of the entire Indian workforce is employed in agriculture, with a great many also employed by a myriad of small, often family-run retailers who fear that the looming golem of the foreign mega-markets will put them out of business.

However, the Congress party has made attempts to assuage the fears of their countrymen, stipulating that foreign investors must source a minimum of 30% of their stock from local providers. Overseas companies must also invest at least $100 million, half of which has to be spent on developing back-end infrastructure. In addition to this supporters point to the huge wastage figures experienced by Indian farmers, something they hope the arrival of Tesco et al will make a thing of the past.

It’s also worth noting that, prior to similar reforms in 1991, the Indian economy was based on largely socialist principles, derived in part from the U.S.S.R. with the aim of protecting domestic businesses. However, conversely it was these same reforms which are credited with kick-starting the huge surge in economic growth the country has experienced in the decades since.

Undoubtedly, allowing the 51% FDI will have a positive impact on India’s economy, an economy which has seen its rampant growth rate cool of late. The removal of intermediaries from the procurement chain will result in a cheaper product for the consumer as well as better prices for the farmer. The resultant combination of value and choice will garner consumers in their droves, accelerating the retail sector enormously and creating millions of jobs in a country which at present has an unemployment rate of over 10%.

Will small retailers lose out? Almost certainly. In addition to this, one could argue that there will be a cultural cost, as a proudly independent rising nation has the big, ugly logos of the retail overlords stamped all over it. However, the idea that FDI will cause money to leak out of India at the seams is simply outdated. Moreover, in the long term there is little doubt that the nation as a whole will benefit enormously from the presence of Western supermarket giants. Past a certain point, it is the idea of economic isolationism which fails to hold water.

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