Is FDI in retail all that it is being touted to be ?
FDI in Retail - Why it is not a Magic Wand as Projected!!!
India has allowed FDI in Retail sector. It will allow big retail player to invest in India. Will that impact Indian retailers? How will it help India? Many questions. Do we have the answers? To answer these questions we will have to see the impact of FDI in Retail in other countries (but not China as products sold by these marts comes from China, so they will never be in Loss). I have tried to analyze impact in other countries. I would try to puncture all the arguments of government by the arguments which will be supported by facts.
Advantages (projected by government):
It will eliminate monopoly by increasing competition between retailers hence consumer will get commodities at cheapest price, also it would not affect small retailers.
Farmers will get best price of their crops as middlemen will be removed.
India will get better supply chain system and cold storages which will help storing grain.
There would be more employment in India.
If a state does not want FDI, they do not need to implement it.
Contradictions:
Below are the contradictions of projected advantages:
Contradiction to Increase Competition, eliminate monopoly and cheapest price:
Competition always happens in players of almost equal stature at a "level playing field". Do you think India's small retailers (say of 53 cities for now) can compete to Walmart? It is not exaggeration if we compare it to a boxing match between a player of 48 Kilo weight category and other of super heavyweight category. We all know what the result would be.
Monopoly is when a group have complete control of something. Now understand that if Walmart sells goods at cheaper prices than other retailers, consumer will go to walmart and after some time small retailer will have to stop their business. In US & Europe where Walmart or other firms came, 80% of local retailers had to shut down. When small retailers gets out, we would have no choice but to buy from Walmart. To my understanding if retail control comes in hands of Walmart from retailers, it should be called monopoly. It would not eliminate monopoly but on the contrary it will help few big retailers to monopolize.
In 1993 when Pepsi and Coke came to India, there were more than 20 firms which were doing business in this sector. Now how many companies are there? Yes, only Pepsi and coke left. All other companies could not survive as it was not a level playing field. Now Coke and Pepsi have monopoly in soft drink market.
Cheap Price: Consumer gets goods at cheap price when there is competition in market not when only few retailers monopolize most of the retail market. For few years consumer may get cheap price but it will happen only till Walmart get hold of retail market control.
Contradictions of "Farmer will get best price as there would be no middleman":
A sugarcanes farmer in India sells their crops directly to sugar mills. There is no middle man but still each year respective state government has to intervene to help farmer gets minimum support price to their crops. Ain't they following the same model
In US when hog farmers/producers started associating to Walmart, they used to get 38 cents to each 1$ they spent. After few years later when walmart dominated 80% of US retail, they get paid only 12 cents of each 1$. Worth mentioning is the fact that hog prices has remain constant in walmart stores all through.
If Walmart helps farmers get more, why number of farmers in US has gone down to 1% from 30% when there were no walmart stores? Same is the case with countries in Africa and Europe? It is said that 1 farmer leave farming each 1 minute in Europe. Why it is happening if farming was supposed to be turn into profitable business with entry of such stores?
It is said that walmart provides best technology and price to farmers. If this was the case then why US government gives around $200 Billion subsidy each five years to farmers in US. Even European Union, Brazil, Africa and all such countries are providing hell lot of money as subsidy to their farmers. Ideally if we go by their logic, US should not be giving even a single penny to their farmers as subsidy. On the contrary there should be more and more people would be doing farming to make money.
Contradictions to more employment:
Yes there would be some new employment, but if we look at the people who will lose employment, then those number will simply outnumber the new employment which could be created.
If it would create more employment why countries like US, Europe are struggling with unemployment?
Walmart provides only 20 lacs of people employment while their turnover is around $420 billion. Indian retail market turnover is also $400 billion but the employment created by it is more than 4.5 crores. Ain't it enough to see the truth?
Fact of the matter is these stores eliminate more employment then they create.
Contradictions to better supply chain model with infrastructures:
India already has supply chain in place. Yes there could be inefficiency in them. But it is something which we can improve. Do we need Walmart for it?
Walmart will help improving infrastructure: Tell me, is creating infrastructure including Cold Storage is any rocket science? Cannot our government do it? First they do not full fill their duties and then they expect any other to come and fix what they could not. What silly logic. It's just a myth. Nothing of this sort will happen.
State can decide whether they want FDI:
This is again a false thing. India signs BIPA with each country which wants to invest in India. According to article 4 of BIPA, each state of the country (which signed BIPA) has to allow foreign investor trade in their state as the local traders are allowed. National Treatment has to be provided to foreign companies hence each state has to allow FDI. They cannot avoid it at all.
Some more Facts:
People say FDI was good in China, so it can be good even in India. Guys understand that China produces cheapest goods in the world, so products Walmart sells in China are made in China. Walmart in India would be selling China's goods (atleast 70%). How could it be good for India?
FDI in retail can be good for India only when India produces goods at cheaper price than China and other nations. It can happen only when farmers/Industries get cheaper loan, electricity, fertilizer, infrastructure, technology, and everything involved in it. This can be done by Union Government and not by Walmart.
What do we need then?
We need a systemic revolution to improve our supply chain. Now question is can we do it? Yes indeed. Not only we can do it but we had done it. Do you remember AMUL? Yes I am talking about White Revolution. We need to follow the same supply chain and other mechanism (with some customization). Amul gives milkmen 70 paisa of each 1 rupee spent by them while milkmen associated with walmart in US gets only 36 cents (Official data). Amul's model is best in the world. No Store like walmart or no government were able to do it. We can do it yet again with help of government (for building infrastructure). I personally do not support FDI in Retail as retail in India is not level playing field for all. I believe FDI in Retail will cause more loss than profit. At the last I would like to mention that Mahatma Gandhi used to emphasize on "सà¥à¤µà¤¾à¤µà¤²à¤‚बन". We should be self-sustained and should not expect someone else to solve our problems. It will make us even weaker. At last I would like to highlight that these companies invest in India for more and more Profit and not Charity.