Terming the decision to invite foreign direct investment in the retail sector as a major reform, B Muthuraman, President, Confederation of Indian Industry (CII), said that this would greatly improve investment sentiment in the country.
“At a time when declining investments have led to slower GDP growth, the entry of foreign funds in retail as envisaged by the Government would go a long way in boosting confidence,” he said in a statement calling for permitting FDI in retail to go ahead.
According to the CII press release, FDI in multi brand retail will give a boost to the organised retail sector, which positively impacts several stakeholders including – farmers, consumers, MSMEs and hence, the overall economy.
As per a recently released CII study, opening up of FDI in retail can increase organised retail market size to $260 billion by 2020. This would result in an aggregate increase in income of $35–45 billion per year for all producers combined; 3–4 million new direct jobs and around 4–6 million new indirect jobs in the logistics sector, contract labour in the distribution and repackaging centers, housekeeping and security staff in the stores.
The Government also stands to gain by this move and can be expected to receive an additional income of $25–30 billion by way of increased tax collection and reduction of tax slippages, the report added.
CII added in the statement that from the farmers perspective, organised retail has the potential to drive efficiencies in this chain by (a) increasing price realization for farmers by 10–30 percent through sourcing directly or closer to the farm (b) reducing handling and wastage by 25–50 percent through consolidation as well as investments in technology, either directly or through aggregators (c) upgrading the farmer’s capabilities by providing know–how and capital.
FDI can help SMEs supply in large volumes, increase quality and become a vendor to international players and increase the quality of products and become cost competitive in global arena. Traditional trade will continue to have its own place and should not decline. Even in the last 3 years when modern retail has grown 24%, unorganised retail has continued to grow, albeit at a slower rate of 10% to 12%.
Investments that would flow in agricultural back end and supply chain would ensure food security through curbing wastages and improving quality for our future generations. Furthermore, it would lower prices for consumers that can help curb inflation. With its ability to drive efficiencies and leverage scale, modern trade is able to increase affordability for consumers and can lower the cost of monthly consumption basket by as much as 5-10. On the other hand, Unorganised retail involves a large number of intermediaries that earn greater profits at times of shortage. For instance, during the current onion crisis, the consumer price jumped 2.7 times in a matter of months. The largest portion of this rise went to the profit margins of the intermediaries, which went up 5.4 times, the report said.
It also noted that as countries develop, the share of organised retail vis-à-vis the total retail business in the country greatly increases. In fact, organised retail share in countries of comparative development such as China and Malaysia is much higher. For instance, in China, the organised retail is estimated at 20 of the total retail sales, whereas in India, it stands at a miniscule 4. The other South East Asian countries too have much larger shares with Indonesia at 30 percent, Thailand at around 40, and in Malaysia as high as 55.
