Rollback of FDI in retail? Ridiculous!

What a sad day for the Indian retail sector. After announcing 100% FDI in retail, the Government today decided to put the proposal on ‘hold’ until a consensus is reached among political parties. The Governments decision to allow FDI in retail resulted in strong criticism from the opposition parties which have led to a logjam of sorts at the recent parliament sessions.  The opposition fears that the Governments proposal would result in loss of livelihood of the 12 million odd kirana [mom-and-pop] store owners.

I wrote about this in my earlier post wherein I mentioned how silly the opposition’s argument is. To reiterate, the kiranas would only integrate with modern retail. One has to keep in mind that about 75% of India’s population still earns less than $2 a day. So unlike in more advanced economies with high per capita income, kirana stores will continue to be a part of the Indian market given the shopping styles of consumers. The culture of shoppers to shop daily coupled with lack of storage space make the kirana store an integral part of the Indian middle class.

Not to mention the 6-8 million odd jobs that experts believe would be created if FDI in retail is opened up. A large number of MNCs would setup shop in India which would create a huge number of jobs, not just directly but indirectly as well [sourcing, logistics, etc]. Like Schumpeter has rightly pointed out in this post, if there is a paradise for multinational supermarket chains it must be India. The country boasts more than one billion inhabitants and an economy that is growing healthily. Its retail market is forecast to nearly double to $850 billion by 2020. It is also very fragmented with only very few supermarkets and no dominant chain.

The organized retail sector in India forms a measly 7% of the total retail trade. To improve this, it is critical that the sector is integrated with the outside world. And just when there was a ray of light, the UPA government has chickened out. What a shame!