The UPA Government and the Opposition have locked horns over the entry of foreign private players in the retail segment. The debate is imperative as the retail industry has always been considered as the nerve system of any nation, and this industry has in most of the cases even helped nations revive themselves during bad times. So it is interesting to evaluate the entire debate from an analytical dimension as well.
Currently, organised retail in India is only two per cent of the retail industry; clearly, a huge opportunity is waiting to be unleashed. The opportunity can be gauged from the fact that the American organised retail market is 80 per cent of the overall retail market, Thailand is at 40 per cent and China at 20 per cent. If, on the one hand organised retail is a global reality, then on the other the Indian middle-class has the given power to splurge, making the proposition viable. Then why is there a protest?
The fact is that the ongoing nationwide protests against foreign entry in retail are a bit too late, and based more on a campaign by emotionally-charged political parties that lack pragmatism. After allowing FDI everywhere, why are there these recent dramatics against retail? Every Government in the past has made deals and allowed foreign direct investment to enter systematically into India without a plan in place to make Indian firms competitive beforehand. We systematically ruined Indian competitiveness; yet, now for publicity, are creating a hullabaloo against the opening up of retail. The fact is that FDI in retail is inevitable.
If things go right, then the entry of foreign firms in the long run should benefit the overall economy by subsuming farmers, producers of finished goods, creating mass-scale employment, increasing Government revenue and hopefully cleansing the muck that lies in our storage and distribution. If all falls into place, then organised retail market is expected to reach approximately $260 billion by 2020.
It would augment income levels of all stakeholders to the tune of $35-45 billion a year, new employment generation to the tune of three to four million directly and four to six million indirectly. With foreign multinationals setting up shop across the country, the exchequer would likely bloat by $25 billion to $30 billion per year. The small and medium enterprises are likely to prosper too and learn the concepts of enhanced production, higher productivity, assured supply, quick payment and better quality.
It will further boost the organised retail growth - a sector that is already growing at an impressive 24 per cent in the last three years. The retail sector would also increase the farmers’ income. So, of course, it is inevitable for India to allow FDI in retail, and the writing on the wall is clear. But in all this, almost everyone is missing out one moot question which is fundamental to the success of the Indian retail story.
Amongst other clauses that the Government has put, one interesting clause is that, these large retailers have to essentially source their supplies from the small and medium enterprises to the tune of 30 per cent.
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