FDI in Retail IV
By Dr Ashwani Mahajan
When the government announced its decision to allow FDI in multi brand retail, amidst wide spread opposition, crisis managers of the government tried to sell the argument that the proposed policy would lead to creation of 10 million jobs in the next 3 years. Argument of the government was that huge investments in the retail sector will see gainful employment opportunities in agro-processing, sorting, marketing, logistics management and front-end retail. This is no new argument of the supporters of FDI in retail. Present Deputy Chairman of Planning Commission, Montek Singh Ahluwalia has been pushing this policy for a long time. During NDA regime when he was a member of Planning Commission, as chairperson of Task Force for creating 10 million jobs a year, he stubbornly supported FDI in retail and wrote in his report that FDI in retail would create quality employment for millions of people in the country. At that point, of time, the then government rejected his report; and for suggesting ways and means for creating additional employment opportunities, another committee under the stewardship of S.P. Gupta, was constituted. S.P. Gupta Committee made several recommendations for creation of 10 million employment opportunities annually in the country by way of labour intensive techniques and self-employment.
No takers of the government’s arguments
However, crisis managers of the government are trying hard to sell this argument, but there are no takers of this argument. In fact, there is no basis of this argument and the same has been borrowed from ‘publicity material’ of multinational retail giants. India has the highest shopping density in the world with 11 shops per 1,000 people. Even according to the ‘Discussion Paper’ issued by the Department of Industrial Policy and Promotion, indicating Government’s Intention to open this sector for FDI, also conceded that there are 120 lakh big and small shops in the country, employing 3.5 crore people directly. Apart from this, there are about 1.5 crore people engaged in wholesale, transportation and other related services for retailing. This is important to mention that 95 percent of small shops are run by self-employed people.
International Experience
International experience tells that small retail has virtually been wiped out in USA and Europe. Many restrictions have been imposed by many states in USA and governments of various European countries to safe guard the interests of the small retailers. Many Southeast Asian countries also imposed stringent zoning and licensing regulations on Super Markets run by multinational retailers, after small retailers were being displaced. Entry of multinational corporations in the retail sector started in 1960s. These companies have taken over the majority of retail business in many developed and some of the developing countries. 80 percent of USA’s retail business is under the control of multinational business. Similar is the situation in England in other west European countries, where 70 per cent of the retail business is run by these MNCs. Brazil’s and Argentina’s 40 per cent retail trade is in the hands of organised retailers. Even in China their share has reached 20 per cent. Organised retailers, who were totally absent in 1960, have displaced small retailers in different proportions in several countries. Today top 200 largest retailers account for 30 per cent of the worldwide demand. Over 50 Fortune 500 companies and around 25 out of Asian top 200 firms are retailers.
It is obvious that organised retailers pushed those, who were gainfully employed in retail sector, out. Even the report of ICRIER, which though cannot be accepted, because of its bias towards organised retailing, concluded that 2 per cent shops would close every year, if FDI were allowed in multi brand retailing. Looking at the international experience the small shops will close down at a much faster pace than this, as these multinational retail giants like Walmart practice predatory pricing policy (selling goods at much cheaper price than the procurement price). At present government is saying that they intend to allow opening of retail stores by these MNCs in 53 big cities of India. This may lead to a large-scale unemployment because of closer of small shops in these cities.
Unemployment is going to increase not only because small shops would close down, but also because of decline of manufacturing in the country. These retail giants are always in search of cheap products, in order to maximize their profits. Taking a clue from USAs experience, we find that most of the goods sold in the stores of Walmart in USA come from China. Off shoring is the normal practice of these retailers. It is no secret that Walmart is the largest buyer of Chinese products in the world. Today American shoe industry, which was world renowned, is totally closed because multinational retailers do not procure shoes from America. If we look at the employment in the manufacturing sector in USA, we find that it was at its peak at 195 lakh people employed in manufacturing sector. This number has gradually being declining and by 2011 it has come down to merely 118 lakhs. This means that manufacturing employment in USA has gone down by 77 lakh in just 32 years. Situation is no different in countries of Western Europe.
Thus, it is very clear that if FDI in retail is allowed, there will be a sharp increase in off shoring of products in the country and thus a widespread unemployment in manufacturing sector also. While announcing its policy for opening up of retail sector for FDI, government tried to confuse, though unsuccessfully, that opening up of retail for FDI is along with a rider that they will procure at least 30 per cent of their items from small-scale industry. Later on, the government had to concede that this condition is not for procuring from SSIs from within the country. This condition is also not in tune with WTO agreements. Therefore, if FDI in retail is allowed, most of our small-scale industry, especially in the consumer goods sector will be forced to close down. Apart from manufacturing, other sectors, which are likely to hit badly, are transport and wholesale retail, which again are providers of significant employment opportunities.
(The writer is Associate Professor, PGDAV College, University of Delhi)
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