Foreign Direct Investment (FDI) – A term that has been dominating the news TV channels, Parliament, dinner-table discussions, heated debates between intellectuals and most of all the mind of common man, since past few weeks. It concerns me to see the amount of ruckus and distrust the approval of FDI has caused in the nation. There are who say that it’s a whole new world of opportunity for Indian economy and there are others who think this is just another means to exploit the ground level farmers. So, what I’ll try and do is list down the positive and negative aspects of FDI (mostly in retail, because that seems to be the main contention point) and leave it up to you to take a call on which side do you want to join.
FDI (Foreign Direct Investment) is a simple process by which the Government, with regulations in place, allows a foreign entity to invest in its country. For example, Walmart will be able to invest in market and sell goods in India just like other foreign enterprises. With the recent implementation, Walmart and other foreign bodies would be able to hold 51% or more stake in multi-brand retail and above that in various other sectors (up to 100% in single brand outlets) putting ownership directly in their hands. Now the reason behind all the ruckus is the supposed threat to the small ‘Kirana’ stores running out of business and farmers losing in the long run.
Well, the first and foremost image that comes to my mind when I hear this is the Big Bazaar stores and Reliance. My point is these multi-brand retail chains made no dents in the earning capabilities of the ‘Kirana’ stores. Why the scare then?
Now, the condition of our farmers is no mystery to anyone. The multiple middle men and under paying for goods is inherent in our system. It has been said that only 1/6th of the total amount paid for produce goes to the farmer. The windfall money is made by the middlemen.
It is also a well known fact that India lacks in the infrastructure required to store excess grains produced, thus leading to 33% wastage of fruits and vegetables year after year. With the international players coming into play, this shortcoming will first and foremost get eradicated. Also, imagine the benefits that the sector will get from being organized. Any layman can understand the multiple job opportunities that the move will bring in for a country marred with mass unemployment. Above all, there are checks and balances in place to ensure that the Indian stakeholders don’t lose out; such as a mandatory 30% of all procurement has to be sourced from small local industries. The sourcing requirements will be checked regularly to ensure proper implementation.
A long term relationship between the retailers and farmers will help the farms thrive, thanks to the world class technologies and capabilities that the global players stand to bring in with them. And, let’s not forget that if the conditions allow, the retailers may export the surplus, thus giving the Indian farmers an opportunity to compete in the global market. At least 50% of the total FDI brought in will be invested in the ‘back-end-infrastructure within 3 years of the induction of FDI. This will ensure that the wastage that happens year on year due to lack of proper storage facilities for the surplus produce will go down.
Countries that have allowed FDI earlier such as China, Brazil and Indonesia have witnessed unprecedented growth, not only in retail but also surge in employment opportunities, better supply-chains and competitive market that leads to better produce. A foreign partner can only enter the Indian market with partnership with an Indian enterprise which should put to rest the fear of complete control in the hands of foreign bodies. Also, the investments are allowed only in cities that have a population of over a million. The investors will not only be bringing in the capital to the tune of US $100million each but will also provide global experience, better management and supply chain and efficiency.
As for the weakness of bringing in FDI, I have to stretch my imagination. All that I can come up with is that the Government may falter to ensure that the regulations and checks within the FDI are implemented. There is unwarranted hullabaloo that the move will further deplete the relevance of Indian culture which already is heavily influenced by the west. Well, the less said on that, the better.
With that, I welcome the markets opening up and am looking forward to watching this move help India thrive. I hope to see some sanity coming into the entire process of having right price for the right goods that reach the right people.
I’ll leave you with a question to ponder over- Are we ready to decide for ourselves with reason and not just irrelevantly get carried away by anybody who makes the loudest noise?