Business

FDI in Retail will be major boost for Economy: CII President

Terming the decision to invite foreign direct investment in the retail sector as a major reform, Confederation of Indian Industry President B Muthuraman said that this would greatly improve investment sentiment in the country.

“At a time when declining investments have led to slower GDP growth, the entry of foreign funds in retail as envisaged by the Government would go a long way in boosting confidence,” he said in a statement calling for permitting FDI in retail to go ahead.

FDI in multi brand retail will give a boost to the organised retail sector, which positively impacts several stakeholders including – farmers, consumers, MSMEs and hence, the overall economy, stated a press release issued by CII.

As per a recently released CII study, opening up of FDI in retail can increase organized retail market size to US$ 260 billion by 2020. This would result in an aggregate increase in income of US$ 35–45 billion per year for all producers combined; 3–4 million new direct jobs and around 4–6 million new indirect jobs in the logistics sector, contract labour in the distribution and repackaging centers, housekeeping and security staff in the stores. The Government also stands to gain by this move and can be expected to receive an additional income of US$ 25–30 billion by way of increased tax collection and reduction of tax slippages, stated the release.

A new level of efficiency in the retail chain is required that will bring higher value to farmers, create millions of new jobs in the organized sector, and lower prices for the final consumer. This can be facilitated through investments by overseas retail players.

From the farmers perspective, organized retail has the potential to drive efficiencies in this chain by (a) increasing price realization for farmers by 10–30 percent through sourcing directly or closer to the farm (b) reducing handling and wastage by 25–50 percent through consolidation as well as investments in technology, either directly or through aggregators (c) upgrading the farmer’s capabilities by providing know–how and capital.

FDI can help SMEs supply in large volumes, increase quality and become a vendor to international players and increase the quality of products and become cost competitive in global arena. Traditional trade will continue to have its own place and should not decline. Even in the last 3 years when modern retail has grown 24%, unorganized retail has continued to grow, albeit at a slower rate of 10 to 12 per cent.

Investments that would flow in agricultural back end and supply chain would ensure food security through curbing wastages and improving quality for our future generations.  Furthermore, it would lower prices for Consumers that can help curb inflation. With its ability to drive efficiencies and leverage scale, modern trade is able to increase affordability for consumers and can lower the cost of monthly consumption basket by as much as 5- 10 per cent. On the other hand, unorganized retail involves a large number of intermediaries that earn greater profits at times of shortage. For instance, during the current onion crisis, the consumer price jumped 2.7 times in a matter of months. The largest portion of this rise went to the profit margins of the intermediaries, which went up 5.4 times.

It must be noted that as countries develop, the share of organized retail vis-à-vis the total retail business in the country greatly increases. In fact, organized retail share in countries of comparative development such as China and Malaysia is much higher. For instance, in China, the organized retail is estimated at 20 per cent of the total retail sales, whereas in India, it stands at a miniscule 4 per cent. The other South East Asian countries too have much larger shares with Indonesia at 30 percent, Thailand at around 40 per cent, and in Malaysia as high as 55 per cent.

The world over, organized retail has helped create a new shopping experience for consumers, offering choice and scale efficiencies. For instance, the fast-growing economies of ASEAN have leveraged retail brands such as Carrefour and Tesco in conjunction with informal retail in the form of wet markets to greatly increase supply, hygiene, regulation, and functioning of local markets.

In the current globalised scenario, overseas companies have been strong participants in the India growth story. He stated that most Fortune 500 companies have established themselves in India and have brought new ways of doing business that have had strong demonstration impact on local companies. Foreign companies are leveraging India’s human talents in areas such as innovation, research and development, design, etc. apart from traditional manufacturing industries. Their partnership has assisted in creating many new jobs across sectors such as automotives, IT, pharma, and others. This would grow manifold with the advent of foreign investment in retail.

Muthuraman also added that the confederation strongly recommends that FDI in retail be allowed speedily.

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