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