The government’s decision to allow 51 per cent foreign direct investment in multi-brand retail, which was taken by the Union Cabinet on Thursday, has been debated across the country for a decade. The objections to it have centred around foreign multinationals swallowing up mom-and-pop stores, which have on the whole functioned rather inefficiently but do provide a living to large numbers of people. It has also been argued that in time leading foreign brands — that dispense a range of goods of everyday use — would come to enjoy near monopolistic advantage in price negotiations with farmers. There may well be something in these suggestions, but all things considered there appears to be a fear of the unknown in the political class in regard to foreign investments.
No proper calculations are made in gauging the employment effect of the entry of foreign capital, but it is evident foreign stores will hire Indian hands to run retail chains supplying quality goods at better prices to consumers. Some of these are likely to be the present family-run stores in which workers are poorly paid. In any case, it is hard to foresee a complete end to small family-run kirana stores. Even in the West, well-run corner shops have not vanished due to the presence of giants like Wal-Mart, Tesco or Carrefour. As for undue monopolistic advantage accruing to foreign stores in price negotiations with farmers, even now arahatiyas (wholesale dealers) in big mandis (wholesale markets) are commonly alleged to shortchange farmers. As a consequence, farmers get relief from government procurement.
In order to allay similar fears about foreign companies entering the agricultural market for procurements, the government can continue to be at hand if farmers begin to lose out in dealing with the branded stores of multinationals. Two, the Cabinet decision permits international retailers to open shop only in urban areas with a population of one million or more. At least on an experimental basis for a few years, this limit perhaps needs to be raised. In due course we will discover the extent of detriment, if any, to the economy, to consumers, and to farmers that is caused on account of multinational operations in multi-brand retail.
Huge investments are needed, say, to set up cold chains in the backend retail sector. This will help farmers, above all, in getting quality goods to towns and cities at better prices than at present. The foreign brands have to provide this as a condition of entry. Mom-and-pop stores simply don’t have the resources to undertake such projects. The country needs huge investments across the board and foreign companies can be a source if they are made to operate under certain conditions.