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Blanket ban on FDI in retail — Didn’t see that coming

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That was a shocker wasn’t it. Or in cricket parlance a ripper or a googly. In baseball it is called as a curve ball. But in investment parlance it is called a blanket ban. Not sure we are going back or forward but the parliamentary committee has recommended a blanket ban on FDI in retail.

A blanket ban should be imposed on domestic corporate heavyweights and foreign retailers from entering into retail trade in grocery, fruits and vegetables,” the Parliamentary Standing Committee on Commerce said in its report on Foreign Direct Investment (FDI) in Retail Sector. (Hindustan Times)

retail-fruits

Good news is it is still a recommendation. Bad news is we never know what our politicians can do. Bharti Airtel and Wal Mart has one cash and carry business starting up. Metro of Germany has one too.

Indian retail industry is at $356 billion growing at 10% per annum. Organized retail is estimated to be around 6% of that. That 6% is an issue if foreigners and the biggies enter it. It can grow beyond 6% but now it might not.

When wal-mart came into smaller towns many of the mom-and-pop stores have vanished and few innovated their way out of it by becoming an exclusive stores. Our policy makers fear the same could happen in India. The whole episode is to protect small store owners or kiranas.

The ban is even extended to the big corporate heavyweights (read Bharti and Reliance) to trade in grocery, fruits and vegetables. That would rule of Reliance Fresh from the Reliance stable and Bharti’s cash and carry stores. Need to see the fineprint but what is the definition of big here?

Will the Future Group be exempted as they were one of the first in the business? Does this mean only stores like Subhiksha will survive?

Now I am convinced that I am thoroughly confused.

This FDI ban confuses me with the agenda or the laundry list we have seen in the past. On one side we are talking about divesting stakes in PSU’s and the other side we are banning foreign investment turning protectionist.

image credit

  1. mayavi says

    In my opinion it is more good than bad. I am no pro-communism and/or anti foreign investments interest in India, but in the larger picture i think it will be severely detrimental for a lot of people across the spectrum if such big foreign retail chains start mushrooming.

    Walmart is reputed as the company which has the most number of lawsuits and cases against it just for the simple purpose of ruining all the local business.

    The fresh farm produce that we get on a daily basis is really great – far better than what you get in the West. I have been in the US for 5yrs and the milk sucks there – you’d feel like drinking a chemical!! and vegetables are also highly un-natural – which we dont have replicate here. We can take the good things from the west not every damn thing!!

  2. D Chaudhury says

    Actually, I dont think its a very bad idea. A blanket ban may not be the greatest thing, but really, do we need retail shops offering sub-quality produce in bulk? I have lived in many cities and I am yet to come across the convenience of going to a regular vegetable market and letting the regular sabzi-wala pack the best produce for me, give a discount, and even sometimes deliver it home.
    It is a real threat though when big retail chains like Wal-mart and Reliance Retail (when it still was big) bulk buy these purchases and the consumer has to travel 10 rows of unnecessary goods (and probably buy a few), reach the vegetable section and select, weigh and buy the food and then pay, while giving the beautiful trucked-to-the-mandi distribution system a boot.
    Sure, looking at how big the industry is, how great the opportunity seems, etc is a good indicator on the financial side. However, Economics is more than just money. It includes employment. And quality of life. Running a country involves much more. It involves ensuring a good standard of living starting with basic food for all strata of society, including the seller of those vegetables.

    Retail is not a better quality of life. It may look good in terms of money flowing in, but to whom is the money going to flow in? Not to the teeming millions who have a connect with their customers, weekly.
    Give me Mom n Pop anyday over Organised Retail. And I dont want India turning into USA. Especially during a recession.
    Try this article from the WSJ.

  3. Mahendra says

    Isn’t a shocker considering that Murli Manohar Joshi was leading the committee!

    1. Sriram Vadlamani says

      LOL. I wanted to put that up but somehow the detail interested me more.

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