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Chapter 3.2.6: FDI in Retail

(November 2011)

Below are the pros and cons of the FDI in retail:

Pros

 Discounts to the customers, especially in lesser known brands.

 Bypassing of the middlemen.

 Ease of shopping.

 Possibility of better recourse to law by customers especially if some kind of public duty is imposed on the big retailers.

Cons

 Breaking up of the traditional debit model of the Kirana shops (may affect the urban poor very badly as the retailers will not get the credit themselves, so they won’t be able to give credit to the consumers).

 Lack of choices to the customers in commodities consumed in very small quantities (may affect the urban poor very badly as they generally buy in very small quantities).

 Threat of high inflation in case the big retailers and the small shops enter into local cartels (it is happening presently).

 Concentration of power will lead to imperfect markets.

 Threat of bias against the poor by the big retailers.

 Most importantly, very bad timing (when India should adopt inward looking approach, these people are opening up the Indian economy to the global swings! Inflation will increase because purchasing power in India is lower).

My conclusion: This government has gone nuts. I have a feeling that the government is making up a case for opening up FDI in aviation sector next — if such is the case, it would tantamount to indirectly helping the Kingfisher Airlines.

Unbelievable! He is willing to lose his government on a stupid FDI issue. Is this government an agent of the Mittals, the Ambanis, the Mallyas and the Tatas? Well, if it is so, let this government go because I am sure they can’t win this adjournment motion, and, thereafter, they will not have any moral position to run the government.

And, I don’t understand how the farmers will benefit. The retailers, at present, buy from the wholesalers, and the wholesalers, from the manufacturing companies. After the big retailers come in, the wholesalers (i.e. the middlemen) will get bypassed, and the retailers will buy directly from the manufacturers; from where comes the farmer?
As far as the perishable commodities, i.e. fruits and vegetables, are concerned, I say that allowing big retailers will lead to very high inflation. At present, the retailers sell poor quality commodities; the small hawkers, therefore, sell at a premium over the prices in the retail stores. And, over time, the two have entered into a cartel, and both of them have been increasing prices. The opening up of the retail sector is also one of the big reasons for the current food price inflation. The rest has been taken care of by the police and the local politicians. In my locality, a weekly vegetable market of more than 30 years standing (i.e. easement right had been gained) has been closed by the force of the police and the local politicians. This weekly market was making vegetables available at much lesser prices to that of the nearby big retailer. And, I think the big retailer had a role in shutting the market. This is an ugly country. No FDI in retail should be allowed. Uma Bharti will be right in burning the big retail marts (for the first time I am supporting a hardcore right winger).

The FDI in retail is the worst thing that can happen to a developing country like India. Most of the big retailers like Wal-Mart are based in the western countries. There is a large differential between the purchasing power in India and the western countries. For example, a banana, which cost Rs. 2 in India, may be costing Rs. 10 in the USA. The big retailers like Wal-Mart are the flag bearers of globalization, who, through their extremely efficient logistics, can even sell a perishable item like an Indian banana in the USA at a marginal top up to the prices in the Indian markets; however, this makes banana dearer in India courtesy the PPP principle with the only differential between the prices in India and the USA being that of logistics costs, which, in the case of big retailers like Wal-Mart, is obviously very low; so, in effect, the price of banana in the USA will drop to Rs. 6, whereas the price in India will rise to Rs. 5 without any rise in the wages. Yes, it’s true that the farmers will start getting slightly better prices in the short-term, but, in the long-term, they will also lose. And, those who think that opening up of the big retail outlets in the urban centers will not effect the rural areas are idiots; if a farmer can get Rs. 1.5/banana from a big retailer, why should he sell it cheaper to a traditional middlemen; he will either produce less or sell poor quality bananas to the Indian middlemen, and, eventually, those poor quality bananas would be all that would be sold to the rural consumers and the urban poor, that too at higher prices than now.
India, it seems, is the most stupid country of this world: its leader are playing fraud upon people on daily basis; even the courts are exhorting people to agitate against rising inflation, but the ever tolerant Indian continue taking it lying down. I can’t understand why the country which has been butchered by the imperialists for years is still not waking up. The fact of the matter is that the present government is making complete fool of the people of India, and, still worst, it is calling it national interest! ©2011-2015 Ankur Mutreja