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FDI in retail: Why the politicians are illogical, and have got it wrong

So much has been written and said about allowing 51 percent foreign direct investment in multi-brand retailing. Over the weekend, politicians have been frothing at the mouth over the "job losses and destruction to the local retail industry" the central government's decision will entail.

Frankly, those arguments seem more driven by political expediency than any economic logic.According to a PTI report, 28 out of 53 cities are expected to place hurdles to foreign retailers setting up shop. That's because these cities are located in 11 states ruled by political parties opposed to the decision to ease FDI rules in multi-brand retail.

 FDI in retail: Why the politicians are illogical, and have got it wrong

The politicians are missing the wood for the trees. PTI

Tamil Nadu J Jayalalitha has already announced that she will not allow foreign retailers into the state; so have Uttar Pradesh's Mayawati and Bihar's Nitish Kumar. The cities in which global giants like Wal-Mart and Carrefour might not be allowed entry include Bangalore, Kolkata, Ahmedabad, Patna, Allahabad and Bhopal.

While the central government gave the nod to the FDI proposal, "retail trade" is still a state subject and, therefore, the final authority to grant licenses and clearances still lies with state governments.

The biggest argument against liberalisation of the multi-brand sector is that there will be a wholescale loss of jobs and foreign retailers will charge in and crush the business out of the local neighbourhood, or kirana, stores.

A must-read opinion piece in The Economic Times by Rama Bijapurkar offers some interesting counter-arguments.

One, given the condition that foreign retailers can only open outlets in cities with a population of one million or more, more than 75 percent of India's eight million consumer-goods stocking kiranas will be protected from the foreign invasion, since they are located in rural India.

Two,for those claiming an adverse impact on the growth of the local industry (more than 90 percent of the industry is accounted for by kirana stores), the fact is kirana stores are already not participating in the growth offered in newer settlements like Gurgaon or Powai, "because without their advantage of historically-priced real estate, they are not viable".

Three,the concerns about loss of jobs in the sector seem overblown. The truth is, a younger generation of better-educated Indians are increasingly looking to branch out of their family's retail business and are themselves looking to exit "sitting in the shop", just as farmers's children are exiting farming.

Four, most hypermarkets and supermarkets typically cater to upper middle-class consumers. Foreign retail outlets are likely to open up a new market segment, not take away custom from existing ones.

Firstpost also recently argued that there really is no reason to pity the kirana store, because they are pretty capable of taking care of themselves. Indeed, most marketing experts acknowledge that they offer some advantages that simply cannot be matched by the best and the biggest of foreign giants, including the provision of door-to-door delivery, extending credit to regular customers and delivering even the smallest of orders.

What about consumers?

In addition, in this whole debate of kirana stores versus foreign retailers, why does no one seem to care about what Indian consumers want?

Consumers have the right to choose if they want to visit Wal-Mart or the local kirana store. Chances are, they'll patronise both. The point is, they, not politicians and producers, should decide who they want to buy their groceries from.

The local retail industry is too well established to be wiped out by foreigners.In fact, if anything, it should make the sector stronger.

Today, apart from the foreign multi-brand retailer, we have every kind of foreign retailer in the country.Consumers can choose to have a Pepsi or a Thums Up, a coffee from Barista or Cafe Coffee Day or ice cream from Amul or Baskin Robbins. No foreign company has managed to come into India and wipe out the entire competition.

In retail stores, you'll find products from Nestle and Hindustan Unilever sitting besides those from Godrej Consumer Products and Dabur.Competition forces companies to evolve and adapt to consumer tastes. Those that learn to do that survive, whether they are local or foreign. If Indians find they don't like shopping at Wal-Mart, they won't. And if we're afraid that suppliers might be squeezed by giant foreign retailers, we need to create rules to prevent that from happening, not stop foreigners entering the market altogether.

Two decades ago, we heard the same cries against liberalisation of the Indian economy. Well, 20 years on, most of Indian industry has survived and even thrived. In fact, our IT industry, one of the most exposed to global competition, ranks among the best in the world.

Certainly, a few industries have fallen by the wayside but those were the ones that failed to evolve with the changing times.

The hue and cry about foreign retailers is more reflective of a political mindset resistant to change, and unbecoming of a nation aspiring to become an economic superpower.

So, let the foreigners come in. And may the best local and foreign retailers win.

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Updated Date: Dec 20, 2014 05:26:25 IST