Thursday, 1 December 2011

Why FDI in retailing is good for India?

Recently Indian govt. proposed to allow 51% FDI in retailing. As expected there is big hue and cry and opposition to this. But I think it's good for India. Here is why I say so:

  1. retailing is one of the biggest employer in the western world so India would have many employement opportynities for youth. Since retail does not require very highly qualified employees so this would be good opportunity for Indian youth who can't and dont go for very high education

  2. average standards of goods and services would increase in retailing and consumers would have more choices

  3. there will be backward integration in the entire supply chain so many more opportunities in entire supply chain for both employement and business

  4. With improved supply chain, farmers would get better prices for their produces

  5. With increase in demands from retailers, better quality seeds and high yield seeds would make way into agriculture so overall agri-productivity would increase

  6. Better supply chain solutions like warehousing and cold-storage would reduces the wastage of agriculture produce which is astonishingly high in India.

  7. There will be knock-on effect on other secots like real estate, transport, packaging, and almost all sectors of the economy

  8. expansion of middle class, as the employees in retail would be mostly coming from lower middle class and low-income families so with their higher earning they will join burgeoning middle class

  9. in local mom-n-pop retailing, there are hardly employee friendly policies and employee generally overwork, with corporate retailing better employee policy would be followed and employees would be better paid.

  10. Overall quality of life would increase in India

  11. More competition so better prices for end-consumers

  12. When worlds leaders in retailing like Walmart, Carrefour comes to India and they may start sourcing for their global markets also from india, thus increasing the exports.

  13. There would not be much threat to mom-n-pop stores as they would still be dominating corner areas in societies and in fact they would benefit as they can source their goods from these big retailers. With stores like Lifestyle, Shoper's Stop and Central, shops on streets selling clothes did not disappear. Similarly Reliance and Big Bazaar have not displaced kirana stores, which continue to complement the services provided by these big stores.

  14. Indian large retailers would get stronger and improve with competition as Pizza Hut could not destroy Haldiram but made it only stronger. So this fear is misplaced.

  15. Small retailers indulge in malpractices like under-weighing, adulteration, this would go away and government can better regulate big retailers

  16. better retailing technology and practices would come into India

  17. This would expand overall retail market instead of just eating into share of existing players so more opportynities and growth

  18. Local stores in India avoid paying taxes completely, which is huge revenue loss to govt. But with retailers, income would increase for govt.

Over a period, govt have to come up with good regulations to regulate the retail markets so the market develops well and it does not hurt others like farmers. So success depends on unbiased regulations. If the market regulations are good and there is fair competition, consumer is always going to be king.

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