Whether it would help, or harm jobs, economy.
By Rajiv Theodore
NEW DELHI: Being the largest multi-brand retail market in the country, the latest move by the government of the National Capital Region of Delhi to ban the likes of Walmart, Tesco and Ikea is bound to send further shivers down the spine of global foreign investors.
This move by Aam Aadmi Party (AAP) led government – a reversal of the decision by former chief minister Sheila Dixit who governed for the past 15-years – is a step which critics say would hurt business sentiments in the country as a whole. But, it was a decision waiting to happen as the AAP had specified in their manifesto while gunning for the hot seat in Delhi, that they would scrap the decision of allowing foreign retailers to do business.
In other words, as things stand now, the victory of AAP could be seen as a defeat of the hopes and aspirations for global retailers who had been eyeing an India entry for long but had been just stopped short by political wrangling and policy flip flops.
Last year, the central government had allowed multi-brand retail access to the country, but had left its implementation at the discretion of the states. Trinamool Congress had walked out of the ruling UPA alliance after that decision. The BJP, which is also opposed to FDI in retail, had bagged the states of Rajasthan, Chhatisgarh and Madhya Pradesh in the recently held assembly polls.
Twelve states have accepted the entry of the foreign retailers so far out of a total of 28 in India which now makes the FDI policy on multi-brand retail into a politically volatile issue just ahead of the general elections in April.
This also means that most large international retailers are in wait and watch mode and they hope a clearer picture would emerge after the elections, especially on the policy front. Some of the prominent big players keen to enter into India include Walmart from US (yearly sales of over $400 billion from 9,000 stores), Carrefour from France (sales $130 billion from 9,500 stores), Tesco from UK (sales $100 billion from 5,400 stores), and Metro from Germany (sales $96 billion from 2,100 stores).
Industry watchers say that If Delhi is out of bounds for retailers, the next best choice — the cities of Mumbai or Bangalore – would not be logistically and financially viable as space constraints and exorbitant real estate prices, especially in Mumbai, would play party pooper. And on top of that Delhi forms a significant part of consumer spending where retail business would stand to lose if they do not have access to it. The NCR is estimated to have potential to attract FDI worth $50 billion in the near future, but the unclear stand of the center and the states has spread a haze and is there to stay, at least for the time being.
Critics arguing against the entry of multi-brand retail say that India still has to grapple with the challenges of meeting the basic needs of its huge population of 1.2 billion, many of whom are below the poverty line.
“It is imperative that policy making with respect to FDI in multi-brand retail must take into account the unique situation of India, and not blindly follow Western practices,’’ Professor Anirudh Deshpande from Delhi University, said in an interview to The American Bazaar.
The sheer financial strength of the multi-nationals give them the capacity to invest and sustain losses for years with an aim to wipe out competition. The case in point is Thailand where 38 per cent of the market share had been eaten up by the foreign behemoths and now this south-east Asian country is struggling to contain the expansion of these retail giants. In almost every market in the world, big multinational chains have edged out other players, leading to unfair concentration. Also it has been seen that farmers in the US received over 40 cents for every food dollar spent at supermarkets in 1950s which has now dwindled to 19 cents.
But as of today, the red flag for retail in Delhi may slow the overall efforts to boost the flagging economy and create uncertainty and confusion for global investors.
Drawing parallels to the US and UK is fine when we look at the drawbacks of the retail business, but then they are quite different economies especially from India’s standpoint. The fact remains that the largest employer in these two western countries is the retail sector. Even in India after the presence of huge domestic retailers like Big Bazaar, job markets had not been dented rather they simply complemented employment creation.
This argument is given credence in a joint study by Boston Consulting Group (BCG) and Confederation of Indian Industry (CII) which revealed that about four million jobs directly linked to the logistics sector – contract labor, repackaging, housekeeping and security, would be created. This would also translate into revenue for the government, the report said. The opening of the sector is bound to create massive supply chains and warehouses.
‘’But caution need to administered that these foreign retailers must not source manufactured products from abroad, especially China, Taiwan and East Asia where manufactured goods are cheaper. Another concern is that the nation’s food supply chain need not be compromised as the British had once exercised such a control over salt on the Indian consumer. In other words local food supply chains need not be exposed to overseas corporate bodies,’’ said Deshpande.
To contact the author, email to editor@americanbazaaronline.com