Ad Here  
August
September
October
November
December
January
 
 
A Fine division of responsibilities You too T M Krishna? A tale of two Bihar babus A historic indirect tax reform Babes In the wood-RBI North block has little clue to curb inflation A dual GST that will protect prosperous states Kudos to GIM organisers... Economy through the month Trail-blazing Tamil Nadu They add lustre to Padma Awards The Great Fall Breaking news or breaking credibility? Focus on agriculture and human resources Truce at Kasturi Buildings Welcome Measures. Work for 10X Change After all, customer is the king Rail-road Rajaraman Welcome rains for damaged roads... A blueprint for the future Oh my GOLD Much ado about nothing What the big B should offer? A gratifying record Why throw baby with bath water? INDIA keeps its date with destiny Jobs - Lost, Changed or Gained Low profile moves PC please be our Santa Sustainably developing manufacturing sector… Outward ho Wanted: decentralised financial system Ganesh’s mantras Two welcome measures from the chief minister... Deming awardees galore! Strategic planning the missing link Tryst with GST It’s raining funds for states. Really? An eco-friendly commute in Mysuru Indian GST – Between extremes… Need plan over the long term planning Sardar Sarovar – the seventy year itch BJP can now hasten its thrust for reforms In the horns of a dilemma Research for survival... TN - so much to offer... CAD and the emergency thereof Public investments and welfare will surge The deluge and the several kindly souls Technology and economic development should be linked Welcome move to widen the tax net… Make way for Make in India... Better relations with UK... Sowing seeds of hope South India’s 100 most valuable companies Skewed Economic Zones? Policy Makers Land, land everywhere, but... Industry can’t get it from Mars, yet Miles to go... Star of the South Chennai Airport-Ready for a rapid take off... Little surplus after salaries, subsidies and debt servicing When the examiner cheated... CSR, tech revolution and bank crisis Reform this licence to…kill Why (not) abolish? Need for radical RBI reform Focus on southern TN... MS Installed An eventful week with VVIPs of Delhi Well-administered State Weaving wealth of western Tamil Nadu How will it PAN OUT Much can be done by us Tax evaders’ get out of Jail-Free Card Babes In the wood-RBI North block has little clue to curb inflation No groundnuts in groundnut oil! 1800 parties registered with EC – Less than 60 contest elections Healthy finances of the Chennai Corporation Pool energy prices Cleansing Indian retail If not Tamil Nadu, where else?
 
Much ado about nothing
The decision of the Modi government to ban entry of foreign firms into India’s retail sector may be as ill thought as the previous government’s decision to allow multi brand firms into the sector but with strings attached.

The basis for the decision is that foreign firms would put the kirana shops out of business, they would reduce the price farmers receive for their produce and they would engage in predatory dumping. None of these arguments is convincing.

The retail sales market is segmented between the high-income groups and the low-income groups. The latter can neither afford nor prefer the sort of products the supermarket chains provide. They cannot afford the refrigerators to store the frozen victuals the supermarkets sell; nor can they afford to commute to the supermarkets that would be mostly located in the suburbs.   

The impact of foreign owned firms on the price of goods sold by the farmers may go either way.  Foreign owned firms (FoF) have to compete with existing middlemen for the produce of the farmers.  Small farmers with little knowledge of marketing and supply chains are unlikely to either learn about available alternatives or switch to the foreign firms as soon as they are allowed to operate. Foreign owned firms may increase the price they pay farmers.  This favourable outcome depends very much on the ability of those firms to establish their presence and communicate with owners of small farms.


Predatory dumping unlikely...

The opponents to the entry of foreign owned firms into the retail trade fear that they may engage in predatory dumping: This again is unlikely as the market for foreign owned firms would be confined to a small proportion of the total market for food products. The argument that entry of foreign firms into retailing would be akin to the operation of the East India Company makes little sense in this day and age. “Surely multinationals today do not feel obliged to invade the countries where they do business.”(Tirthankar Roy-2012).


Case in favour is exageration

Whilst the case of the opponents to the entry of FDI in retailing appears to lack credibility, the case in favour of it seems to be exaggeration. One of the arguments in favour of FDI in India’s retail trade sector is that FoF can provide technology and know-how for creating warehouses and refrigeration facilities for India’s farmers in  addition to transportation facilities.  No doubt that improved warehousing, refrigeration and transportation facilities would limit the huge waste and spoilage of food, estimated to be around 30 per cent of the food produced in the country. It is incredulous that our economy cannot do this in-house. Big business firms in India such as the Tatas, Reliance and Birlas are into food retailing but not extensively.  Indian firms investing abroad report that it is much easier for them to operate abroad unencumbered by red tape, complex bureaucracy and corruption that are all a way of life at home.

 

PepsiCo experiment...

The issue of significance though is the likely contribution of foreign retailers to the growth of productivity. Is it likely that the foreign retail firms will not only provide the technology for distribution but also for the production of agricultural products? It is doubtful if they will do so, simply because distribution and not production is the ownership advantage they possess. In any case, they can hardly be expected to invest the sort of money required to increase productivity in Indian agriculture. This is the province of the government and agriculture research institutions. Admittedly contract farming arrangements such as the ones in place between PepsiCo and potato growers in various states of India do provide farmers not only a guaranteed price for their produce but also technology and know-how. But companies such as PepsiCo, Unilever and Cargill are in the business of food manufacturing and sales and are not just retail traders of products. Measures to promote the productivity of agriculture should precede reforms of the system of distribution, putting the cart before the horse won’t do.

Putting various restrictions on the operations of the foreign firms in the retail sector would do more harm than good. The foreign firms may do no more than create a few jobs for the educated urban unemployed and allow policy makers the satisfaction of having acted in the face of stagnant growth.

 

Author :
Reported On :
Sector :
Shoulder :
RELATED NEWS
ABOUT IE
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
 
PRIVACY POLICY
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
TERMS AND CONDITIONS
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
 
CONTACT US
S-15, Industrial Estate,
Guindy,
Chennai - 600 032.
PHONE: +91 44 22501236
EMAIL: indecom1968@gmail.com