FDI in Retail Sector in India

Source: http://in.rediff.com/money/2007/oct/05retail.htm

But what began as a protest against international chains coming into the country (the initial targets were Metro and Wal-Mart, though even Kentucky Fried Chicken outlets were subjected to attack), and which targeted the government's policy on foreign investment, has metamorphosed now into opposition to organised retailing itself.
The result is a variant of the old argument that small-scale industry needs protection, and therefore that large industry should be kept out of dozens of industries...............

It is odd, for instance, that political parties and state governments should make common cause with traders and ignore the interests of the far more numerous producers and consumers - indeed, farmers in UP had come out in favour of the store chains being opened, and consumers have definitely benefited from lower prices.
Small traders have already begun adjusting their prices, reducing them to match the new competition. All these developments are good for the economy.

Source: http://rupe-india.org/43/retail.html
Though FDI in retail trade is as yet restricted, the Government of India has a more liberal policy towards wholesale trade, franchising, and commission agents’ services, thus preparing the ground for FDI in retail as well. Foreign retailers have already started operations in India through various routes: (i) joint ventures where the Indian firm is an export house; (ii) franchising² (eg. Kentucky Fried Chicken, Nike); (iii) sourcing of supplies from small-scale sector; (iv) ‘cash and carry’ operations (Giant in Hyderabad, Metro in Bangalore)³; (v) non-store formats – direct marketing (Amway). Large international retailers of home furnishing and apparels such as Pottery Barn, The Gap and Ralph Lauren have made India one of their major sourcing hubs. Up to 100 per cent FDI is allowed in ‘cash and carry’ operations. The Great Wholesaling Club Ltd is one such example.⁴ In February 2002, the world’s largest retailer, Wal-Mart, opened a global sourcing office in Bangalore. In November 2006, it announced its entry under a joint venture with the Indian corporation Bharti. For the time being, Bharti is to own the chain of front-end retail stores, while the two firms will have an equal share in a firm that will engage in wholesale, logistics, supply chain and sourcing activities.⁵ This is seen as a preliminary step by Wal-Mart pending the removal of all restrictions on FDI in retail trade. ................................

Thus major retail chains like WalMart and Tesco have already opened their procurement centres in India. For large-scale procurement operations, they will have to make substantial investments in infrastructure and develop an efficient supply chain. By opening retail chains in the host country they would like to exert monopsony⁹ power, eliminating other major buyers from the market. In this context, we must remember that India is fortunate to be part of two major centres of biodiversity out of the few remaining such centres in the world. The wide food variety and rich heritage of textile and other handicrafts makes India a very attractive source of supplies for retail giants. Wal-Mart procured goods worth $1.5 billion from India in 2004, which is expected to touch $2 billion this year. From India, Wal-Mart mainly sources home furnishings, T-shirts, night-suits etc.¹⁰ It has also been reported that Wal-Mart has already proposed to the West Bengal government to take over the fresh food markets of in and around Kolkata. Though the government has not accepted the proposal as yet, it has not rejected it either.¹¹ ............................................................

Global supply chains have created new opportunities for labour-intensive exports from low-cost locations. The result is a dramatic growth in the number of producers, heightening competition among the world’s factories and farms for a place at the bottom of the chain. At the top end, however, market share has tended to consolidate among a few leading retailers and brand names. Such an imbalance between intensely competing producers and relatively few buyers in the global market puts the small suppliers at the receiving end. The owner of a Brazilian shoe factory, facing intense international competition to sell to leading footwear retailers in Europe commented: “We don’t sell, we get bought”. .........................................

Since supermarkets increasingly control food retailing, the world’s farmers are competing for a place in their supply chains. It can be good business, especially for farmers selling top-quality and out-of-season produce. But fresh produce is a risky business. And the extreme imbalance in negotiating power between a handful of supermarkets and the world’s farmers means that most of the gains from trade are captured at the top. Supermarkets are pushing price and payment risks onto farmers and growers, controlling packaging and delivery requirements, squeezing producers’ margins, and focusing on technical, not ethical standards. The figure below captures the real picture. While the African producers as a whole get only 9 per cent of the retail price of an exported apple, the overseas retailers in UK corner a 42 per cent share. ......................