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Multi-brand retail: Another roadblock

The BJP on Monday unveiled a plan to steer the economy out of mess, but made it clear that it was opposed to FDI in multi-brand retail. HT takes a look at views from both sides of the fence.

business Updated: Apr 08, 2014 23:25 IST
Gaurav Choudhury
Gaurav Choudhury

The BJP on Monday unveiled a broad plan to steer the economy out of a web of mess, but made it clear that it was opposed to allowing FDI in multi-brand retail, contentious issue which goes against the party’s pro-investment image. HT takes a look at views from both sides of the fence.

What has the BJP said about foreign direct investment (FDI) in its poll manifesto?
Despite the burden of reform expectation, the party’s poll manifesto, released on the first day of the Lok Sabha polls, made it clear that it would not allow FDI in multi-brand retail, potentially raising the fear of shutting the doors on global giants’ plans to open deep discount super-stores in India.

Why is the BJP opposed to FDI in mutli-brand retail?
The local trading community and the BJP are opposed to allowing any foreign investment in the multi-brand retail sector arguing that it would endanger livelihood of millions of neighbourhood grocery stores and street vendors at risk.

What is the policy status of the FDI in multi-brand retail in India?
In September 2012 the central government eased norms arming state governments the powers to allow or prohibit FDI upto 51% in multi-brand retail stores.

In January, in a bold move, the erstwhile Aam Aadmi Party (AAP)-led government in Delhi as well as the BJP government in Rajasthan had reversed the decision to allow global chains to set up superstores in the national capital and the northern state.

Why is there so much of opposition about the decision?
Opposition parties and small traders are worried that large deep-discount stores of transnational corporations will drive street vendors and neighbourhood mom-and-pop kirana stores out of business endangering their livelihood. The pros and the cons are clashing on the issue enough to create confusion. A third of the states have said yes to FDI in supermarkets, another third no and the rest are undecided.

Opposition to the move revolves around the gains from better supply management of food between the farm and the kitchen. For instance, critics of allowing FDI in multi-brand retail argue that apples from Himachal Pradesh can be found all over the country.

Fresh water fish is transported from Andhra Pradesh to faraway Assam. According to them, these are working in a perfectly efficient manner and you don't need FDI to set up such efficient supply chains.

Will kirana stores’ business be affected?
Local traders argue that neighbourhood kirana stores will eventually have to shut shop because these would not be able to offer products at very deep discounts compared to transnational retail chains which source products globally.

The counter argument to this is that large deep discount stores cannot offer the convenience and loyalty of neighbourhood kirana stores who are available at the customers’ beck and call, literally. Besides, those in favour of FDI in retail cite international experience in some other countries to show that kirana stores have co-existed and in fact, thrived, after the advent of modern retail.

What is in it for farmers?
Those who argue in favour of FDi say that a complex chain of procurement involving several middlemen hurts farmers’ interests. FDI in retail will create the enabling environment will ensure procurement, at least of fruits and vegetables directly from farmers offering them higher income. At present, the price that a farmer gets for a kilo of onions is about half of what it is sold to by vendors and retailers to final consumers.

Critics, however, argue that the efficiency of the existing supply chains comes at a cost to the farmer. For instance, they point out that retail chains are very touchy on the quality of fruits and vegetables. A minor blemish on the produce and they simply drop it.

Besides, critics also point out that that it is incorrect to cite international experience that modern retail leads to higher income for farmers. Milk producers in the US get only 38% of the consumer's dollar, says Praveen Khandelwal, secretary-general, Confederation of All-India Traders (CAIT).

In the UK this dips to 36%. However, in India the producer gets more than 70 paise of every rupee consumers spend on buying milk. This is because India has built up a big cooperative movement around marketing milk that has significantly cut waste.

How many FDI proposals in multi-brand retail have been cleared?
British retail giant Tesco is set to become the first multi-brand overseas supermarket chain to set up shop India in partnership with the Tata group’s Trent Hypermarket Limited (THL) Tesco and THL have applied to the Indian government for setting up a 50:50 joint venture involving an initial investment of $110 million (about Rs 675 crore).