Effects of Multi-Brand Retail FDI on Businesses – Good or Bad?


Our current economic situation is bad more due to the lack of initiative from the govt than the global economic crisis. The opening up of FDI has instantly boosted the market health, the Sensex, Indian companies, the ADRs and last but not the least foreign companies who want to come to India.

Market Growth-001

However, many believe that FDI, especially in multi-brand retail may harm local merchants. Lets look at it in detail to find out…

Will FDI kill the local businesses?

It may definitely affect  local Kirana stores and small retail shops, but only to a certain extent. It will not wipe out their businesses as has been projected by many!

Out of 10 local kirana stores in a neighbourhood 2-3 may shut down, 3-4 may take a hit and 3-4 will still manage to do well. Kirana stores in urban locations with proximity to new super stores may face the maximum brunt, while the ones in rural areas may not be affected at all because of this. Infact, the Wal-Mart’s and Ikea’s of the world may never even look at going to rural areas for atleast a decade given the lack of spending population in rural India.

How many families does one kirana store benefit?

In 99% of the cases, it is the owner’s family who runs the shop. Right from the sweeper to the elderly at the counter belong to the same family and even with the rise in nuclear families it has been the same only the family size has shrunk but the business remains in the hands of one family. So say a family makes 20,000 per month. This family is at the risk of losing its income.

How many families does a Super Store like WalMart benefit?

Ans. – Many

A mart opens in a neighbourhood where there is a potential for small spenders to spend more on goods at a cheaper rate. The mart employs people at various skill levels – unskilled, semi skilled and highly skilled.

The unskilled basically are used for the loading, unloading and other physical activities. This section basically consists of locals from nearby villages or poor pockets of a city and each city has plenty of those. The marts that come up will use the existing supplier initially and hence that part of the chain won’t be affected.

The semi – skilled are the ones with soft skills. Many a times, marts have their own training for this section. Each mart has approximately 5 cash counters, each having at least one or maximum 2 people.

Skilled section is the managerial section. They are managers across all levels, right from the store to the top rung. So management students from b-schools across the spectrum may be placed in these stores, offices.

The unskilled and semi-skilled are mostly the ones who initially didn’t have a job or were doing a daily wage job.

So, on a large scale, a national perspective the number of families that may be displaced due to introduction of marts will be more than compensated by the jobs it will offer. And if the local kirana store has to survive it will simply have to innovate or diversify its business.

The agriculture sector may take a beating since most of the next generation farmers may end up preferring a steady pay service job rather than an unsteady one. But the marts that open up agri-products section will tie up with local farmers for produce. This tie-up has to be monitored by the govt by setting up Amul-esque co-op, to ensure that the farmers aren’t exploited but also benefited from the contract.

In conclusion, yes, there will be a few who will suffer due to companies like WalMart coming in India, but there will far more people who will benefit, including the consumers who will essentially save a lot of money due to superior supply chain they will offer..

What’s your take on this?

  1. vijay says


  2. Altaf Rahman says

    Sorry if my writing gave wrong impression. Agriculture is a National security issue. We should as far as possible never depend on imports. I am against FDI in agriculture.
    What I wanted to say is if small / marginal farmers sell out, the average land holding will increase. (Simple farmula : Average farm land per farmer = Land area divided by no of farmers. Therefore it is inversely proportional to the no of farmers)
    The only area where I want involvement is science. We should bring in scientific farming methods, greenhouses (if possible), silo storage facilities in every nook and corner of India, Cold storage facilities, transport compliant with farm produce movement, roads, artificial ponds to increase the ground water availability, lift irrigation projects etc.
    There is a vast scope for private involvement to increase quality of life in rural India. The scope is so much that all the money available with rich can not fill up projects.
    Even in such case, I never support forign investment. We only need science, good management methods, quality inputs. No JVs. No business models.
    Just my two paisa :)

  3. sudarshan says

    Altaf – it is always a pleasure to read your comment :D and sure your 2 paisa is worth a lot more
    – people who contemplate leaving farming basically sell land to real estate
    – for leasing you actually will need out of job people, but the Dmarts will absorb this floating population
    and please let us keep agriculture out of FDI .. when agro-science meets money meets greed it is and unholy mix

  4. Ashish Wasal says

    FDI is must in India, Farmers and we as consumers would surely benefit from that. We will have better products and a price war and farmers will have more options to earn. And above all half of the INDIAN industry is sinking… Because of FDI it will be able to survive.

  5. Altaf Rahman says

    FDI in agriculture? No way. It will never be allowed. Forget Forigners, even NRIs are not allowed to buy agricultural land.
    I think the discussion is about FDI in retail. The article touched agriculture only coz it will also be effected by FDI in retail.
    Here I disagree with the article. Agriculture will never take a beating. The farmers who opt for jobs in Malls are in effect creating a vacuum in farming. Obviously no one keeps the land idle. Either he leases it to some one or sells out. Selling out means the buyer is either already having land, in which case his land holding becomes bigger, reducing cost of produce. If the buyer is a new guy, we are taking out one unemployed person and adding a new farmer. Its a win win situation.
    Just my two paisa :)

  6. Vandhana Karthick says

    I severely oppose in FDI entry into India..The only field which FDI cannot entry is Agriculture, only they can invent new kinds of machinery and also after 10years we cannot find an agricultural land has almost 35% lands and sold by putting flats.75% people still in India uses near by Kirana shops for their daily basic needs, so they re able to eat with their income, and now if they do the same how come their family would get run?

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