Allow FDI in multi-brand retail through PPP mode: ASSOCHAM study
Wednesday, October 07, 2015
ASSOCHAM has reiterated for allowing foreign domestic investment (FDI) in retail industry and modernisation of wet market through public-private partnership (PPP) with adequate safeguard so that these new corporations do not become monopolistic and charge high price.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) allow opening of 100 per cent FDI in retail would have led to the creation of such farm infrastructure so that FDI in general could supplement domestic efforts significantly.
The chamber Secretary General Mr. D S Rawat said, the better performance of FDI in retail industry it is recommended that there should be modernization of wet markets through public-private partnerships. Along with this facilitating cash-and-carry outlets, like Metro, for sale to unorganized retail and procurement from farmers, encouraging co-operatives and associations of unorganized retailers for direct procurement from suppliers and farmers.
Also ensuring better credit availability to unorganized retailers from banks and micro-credit institutions through innovative banking solutions and also facilitating the formation of farmers’ co-operatives to directly sell to organized retailers, encouraging formulation of “private codes of conduct” by organized retail for dealing with small suppliers. These may then be incorporated into enforceable legislation.
Last but not the least simplification of the licensing and permit regime for organized retail and move towards a nationwide uniform licensing regime in the states to facilitate modern retail and strengthening the Competition Commission’s role for enforcing rules against collusion and predatory pricing.
FDI in multi brand retail will transform the retail landscape in a significant way. Standard Chartered Research says “The world has entered in its third super cycle characterized by Industrialization, Urbanization and International trade”. FDI would not only prove to be fruitful for the economy as a whole but will also integrate our retail with the global retail market, ASSOCHAM pointed out. In Chinese market deployment of 100% FDI was done in 2004, today its retail sector is the second largest (in value) in the world.
“It is important to allow the entry of FDI into this sector in a properly regulated fashion. We must guard against the risk of these new corporations becoming monopolistic and charging high price. FDI in retail may also help bring in technical knowhow to set up efficient supply chains which could act as models of development.” In a true potential scenario, opening up of FDI can increase organized retail market size to $260 billion by 2020. FDI in multi-brand retail will give a boost to the organized retail sector, which positively impacts several stakeholders, including producers, workers, employees, consumers, the government, and, hence, the overall economy.
FDI in retail will also bring the investment and expertise necessary to modernize and develop the farm and manufacturing sector. Analysts estimate that the retail market in India, currently worth $500 billion (organized and unorganized market) will grow to $1.3 trillion by 2020. Organized retail is expected to reach 20-25% of total retail by 2020 (from a current 5-6%). The prospect of higher growth in the food and grocery category is particularly attractive because over fifty percent of India’s workforce is employed in the farm sector. Therefore, advocates see a significant role for FDI for the economic development of the country as a whole.
The opening of retail industry to global competition would spur a retail rush to India. It has the potential to transform not only the retailing landscape but also the nation’s ailing infrastructure. According to the study fresh investment in Indian organized retail will generate 10 million new jobs, and about 5-6 million jobs in logistics alone.
Retail business in India is largely unorganised, opening of MBRT (Multi Brand Retail trade) to FDI will bring in benefits over the long run in terms of better supply chain management, reducing the role of intermediaries, providing better returns to farmers in terms of higher farm gate prices and dissemination of infrastructure. While FDI seem to have promising benefits for the farmers as well as consumers, it is seen with equal suspicion.
Therefore, entry of foreign players in retail sector must be gradual and with social safeguards so that the farmers, consumers and small retailers are resilient to any potential adverse situation. The government should try to ensure that foreign and domestic players are at equal footing, so that domestic players (especially traditional retailers) are not at back foot.
With allowing of FDI in retail it will immensely help in building the social infrastructure in the urban and the rural areas of the country like building of schools, empowering rural women of the society which would contribute towards the upliftment and the development of the rural people especially. Both multi brand and single brand stores in India will have to source nearly a third of their goods from small and medium sized Indian suppliers.