General Awareness

April 04, 2017 @ 01:15 PM

FDI in retail will empower consumer

General awareness on current topics is essential as not only you will be getting questions on GK in various MBA entrance exams but it will be useful for Essay writing test and WAT also.

Today, you will read General Awareness Topic: “FDI in retail will empower consumer” 
 
Indian retail sector is highly fragmented as compared to other developed as well as developing countries. This unorganized podium shows a great potential for the organized retail industry to prosper in India, as the market for the final consumption is very large. 
 
In India, retail trade was largely in the hands of private independent owners and distributor’s structure for fast moving consumer goods (FMCG) consisting of multiple layers such as carrying and forwarding agents, distributors, stockiest, wholesalers and retailers. Thus, the growth potential for the organized retailer is enormous in our country.
 
This growth will benefit not only the business sector but also to the consumers. According to the Government of India, FDI in retail will take India’s consumerism to a new growth trajectory. Keeping this point in mind, the Government has allowed 51% FDI in multi brand retail and increased FDI limit in single brand retail from 49% to 100%. However, much political issues have been raised.
 
Governments’ stand on FDI in retail:
  • FDI in retail will create 80 lakhs jobs.
  • It will bring growth and prosperity.
  • Prices of products will come down. This will tame inflationary pressure in the economy.

Opposition party stands on the FDI in retail:

  • Government does not have any clear stands on the FDI in Retail. They have not done any survey and cost benefit analysis of this issue.
  • As claimed by the Government that it will create Jobs, opposition does not buy it. They claim million of retailers have to shut their shops.
  • As claimed by Government that it will bring down price, opposition thinks otherwise. 

How farmers to get benefited?

Farmers in India get only 10%-12% of the price the consumer pays for the Agri-products. Coming of organized retailing will benefit farmers in big way. Big retailers sell their product at very competitive prices. So, they source it directly from the farmers. Middle man does not have any place in this format of retailing. This will not only benefit farmers but also help in checking the food inflation.

Also, we have very inadequate facilities to store the food grains and vegetables. As the investment will flow into back end infrastructure, supply chain will get strengthened. Storage is a major problem area and 20%-25% of the Agri products get wasted due to improper storage.

Arguments regarding FDI in retail
Stakeholder Supporting arguments (source) Opposing arguments (source)
Unorganized retail
  • No evidence of impact on job losses (ICRIER).
  • The rate of closure of unorganized retail shops (4.2%) is lower than international standards (ICRIER).
  • Evidence from Indonesia and China show that traditional and modern retail can coexist and grow (Reardon and Gulati).
  • Majority of small retailers keen to remain in operation even after emergence of organized retail (ICRIER).
  • Unorganized retailers in the vicinity of organized retailers saw their volume of business and profit decline but this effect weakens over time (ICRIER).
  • Other studies have estimated that traditional fruit and vegetable retailers experienced a 20-30% decline in incomes with the presence of supermarkets (Singh).
  • There is potential for employment loss in the value chain. A supermarket may create fewer jobs for the volume of produce handled (Singh).
  • Unemployment to increase as a result of retailers practicing product bundling (selling goods in combinations and bargains) and predatory pricing (Standing Committee).
Farmers
  • Significant positive impact on farmers as a result of direct sales to organized retailers.  For instance, cauliflower farmers receive a 25% higher price selling directly to organized retailers instead of government regulated markets (mandis). Profits for farmers selling to organized retailers are about 60% higher than when selling to mandis (ICRIER).
  • Organized retail could remove supply chain inefficiencies through direct purchase from farmers and investment in better storage, distribution and transport systems.  FDI, in particular, could bring in new technology and ideas (DIPP).
  • Current organized retail procures 60-70% from wholesale markets rather than farmers. There has been no significant impact on backend infrastructure investment (Singh).
  • There are other issues like irrigation, technology and credit in agriculture which FDI may not address (Singh).
  • Increased monopolistic strength could force farmers to sell at lower prices (Standing Committee).
Consumers
  • Organized retail lowers prices. Consumer spending increases with the entry of organized retail and lower income groups tend to save more (ICRIER).
  • It will lead to better quality and safety standards of products (DIPP).
  • Evidence from some Latin American countries (Mexico, Nicaragua, and Argentina), Africa (Kenya, Madagascar) and Asia (Thailand, Vietnam, India) reveal that supermarket prices for fruits and vegetables were higher than traditional retail prices (Singh).
  • Even with lower prices at supermarkets, low income households may prefer traditional retailers because they live far from supermarkets, they can bargain with traditional retailers and buy loose items (Singh).
  • Monopolistic power for retailers could result in high prices for consumers.

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