FAQs on FDI in Multi-Brand Retail Trading

Q. How will farmers be affected by the policy on FDI in multi-brand retail trading?

Answer:

Farmers will receive better remuneration for their produce. Indian farmers, at present, realize only one-third of the total price paid by the final consumer. Farmers will get better prices from the reduction in post-harvest losses (nearly 30% in the case of fruits and vegetables), strengthening of the backend infrastructure and direct purchase by the retailers. FDI in multi-brand retail trading will result in the strengthening of the supply-chain infrastructure for all products, ranging from storage to processing and manufacturing infrastructure, which would reduce post-harvest losses. At least 50% of the total foreign investment will be in the villages, which would transform India through improved agro processing and cold-chains.

Q. How will medium and small industries be impacted by the policy?

Answer:

30% sourcing from Indian small industries has been made mandatory. Small manufacturers will benefit, as it would provide the necessary scales for these entities to expand capacities in manufacturing, create more employment and also strengthen the manufacturing base of the country. They will derive the benefits of improved productivity due to technology up gradation, resulting in increased profitability and earnings. The sourcing condition will also enable the small enterprises to get integrated with global retail chains, thereby enhancing their capacity to export products from India. New manufacturing opportunities will open for the nation’s micro, small and medium enterprises.

Q. Will this policy force small retailers to shut down?

Answer:

The same argument was used against Indian organized retailers. However, domestic organized retail already exists-such as ‘Big Bazaar’, ‘Shoppers Stop’, ‘Reliance Fresh’, ‘More’, ‘Big Apple’, ‘Spencers’, ‘Croma’ etc. It constitutes only about 4% of retail trade and co-exists with the small ‘kirana’ stores and the unorganized retail sector. There has been a strong competitive response from traditional retail to these organized retailers, through improved business practices and technology up gradation. As a result, the organized retail chains have closed down in a number of locations, while others have reduced the scale and spread of their operations. Global experience also indicates that organized and unorganized retail co-exist and grow. Small retailers would continue to be able to source high quality produce, at significantly lower prices, from wholesale cash and carry points. In countries such as China, Thailand, Indonesia, Brazil, Singapore, Argentina and Chile, where there are no caps on FDI and where there are no conditions, small retail stores have flourished, leading to more employment. Hence, it is not correct to state that FDI in multi-brand retail trade will force small retailers to shut down.

Q. How will the policy help the rural youth?

Answer:

FDI in multi-brand retail trading will create a large number of employment opportunities, in villages spread across the country, in the entire range of activities from the backend to the frontend retail business, as also from the skills imparted to them by the prospective investors.

Q. How will consumers benefit from the policy?

Answer:

Consumers stand to gain, firstly, from the lowering of prices due to supply chain efficiencies and secondly, through improvement in product quality, as a combined result of technological upgradation; efficient grading, sorting and packaging; testing and quality control and product standardization.

Q. Will this policy affect the lower income sections of society adversely?

Answer:

Lowering of prices will arrest the erosion of real incomes. With their existing incomes, the economically disadvantaged sections will be able to buy more than before. On the other hand, as supply-chain efficiencies are built up and producers get remunerative prices, their purchasing power will also rise.

Q. Will the Indian market be flooded by Chinese products as a result of this policy?

Answer:

India’s trade policy has safeguards to prevent the Indian market from getting flooded by cheap Chinese goods.

The 30% sourcing condition will ensure that more manufacturing occurs in the country for the retail stores. At present, no such condition has been imposed on domestic organized or small retail.

Also, the safeguard of at least 50% investment being made in backend infrastructure provides a powerful incentive for investors to use the investments in the backend infrastructure to produce/source products locally rather than import them, which would necessarily carry the additional costs of tariffs, insurance and freight. Given this, it would make very little economic sense for these retailers to go in for large scale imports.

Q. Does the policy have any safeguards against predatory pricing?

Answer:

A strong legal framework in the form of the Competition Commission, which covers all sectors, is available to deal with any anti-competitive practices, including predatory pricing.

Further, the calibrated approach provided in this policy will ensure limited presence of such entities which would make it difficult for them to stifle competition.

Q. Was adequate consultation carried out before the decision was taken?

Answer:

All stakeholders were consulted. Government issued a discussion paper on ‘FDI in multi-brand retail trading’ in July, 2010, which was released in the public domain. Around 175 responses were received which were also put in the public domain. Government took the decision to permit FDI in multi-brand retail trading on 24 November, 2011, which was held in abeyance for broader stakeholder consultations. Thereafter, Government carried out extensive consultations with stakeholders, including the SMEs,

food-processing industry, consumer associations and farmers’ associations. All State Governments were also addressed in this regard and views expressed by them noted while finalizing the policy. Some State Governments endorsed the policy, while others expressed certain reservations. Some others conveyed that they were examining the matter.

Q. Is this policy mandatory for all States?

Answer:

The FDI policy on multi-brand retail trading is an enabling framework. It remains the prerogative of the states to adopt it or not.

The Constitution of India confers equal rights on all States. A number of agrarian and fruit producing States have demanded implementation of the policy. As such, the decision to implement and benefit from the policy has been left to the States. The policy provides that it would be the prerogative of each individual State Government to decide whether and where a multi-brand retailer, with FDI, is permitted to establish its sales outlets. No State can therefore prevent any other State from adopting the policy.