Should full FDI be allowed in Single Brand & Multi Brand Retail in India?

Almost 20 years after economic reforms and 5 years after allowing 51% investment in single brand retail outlet, the retail sector in India is in need of another sweeping change in the policy framework to meet the rising demands of Indian Economy. The Multi Brand retail sector is worth $400 billion at present and is expected to become double by 2015. The traditional family run Kirana stores will not be able to cater to the growing need of the customers. At present the foreign firm’s operation in this sector is limited to cash-and-carry and whole sale outlets.
Opening up this sector to multinationals will bring sweeping changes to this hitherto fragmented and tightly controlled sector. Multinationals will not only bring investment but will also bring requisite expertise and technique in fields like SCM and procurement. This would ease massive supply bottlenecks that have contributed to keeping inflation stubbornly high in recent months. In India 30% to 40% of post-harvest produce goes to waste which amount to Rs.1 trillion annually.Foreign investment will improve logistics such as Cold Chain and back end infrastructure which can cut down this loss to the half. A much organized retail sector which currently is around only 5% will also improve tax receipts. Farmers will also be benefited because they will be directly selling their products to big firms, eliminating the middleman.
In July last year, the Ministry of Commerce had floated a discussion paper on this subject. Though the paper did not make any recommendations but its findings were in the favor of allowing foreign firms in Multi Brand retail sector. The government has to understand that FDI in retail is necessary in order to ensure expansion of organized retailing in the country. This will not only address the structural issue such as low productivity and wastage but will also result in better prices for consumers as well as farmers.

(This article was published in February edition of the Bizbook- Newsletter of G.D. Goenka World School)