FDI in the Retail Sector

FDI stands for Foreign Direct Investment. The issue in hand is that whether "FDI in the retail sector in India beneficial for the aam junta ?"


Yes because:
1. It will lead to a lot of investment into the country which in turn will lead to the development of efficient retailers with international expertise which would improve the scenario for the consumer.
2. It would lead to a competition to the domestic and local retailers which will have to become competitive in order to survive. Again, a boon in the consumer’s perspective.
3. According to the recent WTO mandate, India has to allow FDI in the retail sector otherwise; all the tariff and trade privileges enjoyed by India would be withdrawn.
4. Due to the increased competition at the point of Sales, the competition among the suppliers will also increase, which in turn will increase the profit margins for the sellers and this advantage will be carried to the consumer in a competitive market.
5. The export of retail items will increase which will improve the GDP, as players with international presence will be tied up with the local markets.


No because:
1. It might spell doom for the local kirana shop owners, running with small investments.
2. The international players with expertise and experience can lead to the downfall of the Indian players who are relatively new.
3. The international players (having large market share) might adopt a monopolistic attitude and the prices can be dictated to the consumers.
4. The unorganized retail sector of India amounts to 7-8% of the GDP and often is seen as last resort for individuals. An unemployed person can always open a small kirana shop. The international players might spoil this delicate and complex balance.

Now, I will try to put some explanations and clarifications to negate each of the reasons why FDI should not be allowed:

1. The bigger players will not spell doom to the kirana shop owners because India is a country with very diverse market segments. The bigger players will chiefly target the cities while the kirana shops are prevalent in small cities and villages. Moreover, it’s the same concept like in the electronics sector, SONY and SANTOSH can co-exist, similarly WALLMART and KIRANA can co-exist.

2. To protect the Indian players with relatively new experience, the government can put a cap on the percent of FDI allowed in the retail sector and open it completely when the local players become equally capable and competitive. It’s similar to the Chinese model.

3. While there does exist a threat of the bigger players adopting monopolistic attitude, but this can be overcome by opening the retail sector to more international players which compete with each other and finally the consumer will get the best deal. These factors will even out with time.

4. Even with the onset of the international brands into the market, the existence of the kirana shops should not be hampered as the target market segment of both of these is entirely different. So, we can only expect an increase of the earnings by exports.

Hence, considering all the pros and cons of FDI entering the retail sector, we can conclude that the answer to the question in hand is definetely a Yes with a provident viewpoint in mind.

Disagreements are welcome!