Sat, 16 Mar 2013 17:30:00 GMT | By The Hindu Business Line/Nithin Nemani

FDI in retail holds no terrors

Foreign direct investment in multi-brand retail, with subtle regulation as in China, will ensure that existing kirana shops are not pushed out of existence

FDI in retail holds no terrors (© Reuters)

The latest Economic Survey expressed optimism about the decision to allow foreign retailers in the multi-brand segment. In this context, it would be meaningful to discuss the rationale and the consequences of this decision alongside the success stories of countries which have opened doors to foreign retail much earlier.

The agricultural sector is rife with disguised unemployment and the entire agricultural supply chain is in want of efficiency. The Nabard 2011 retail study mentions that up to 7 per cent of food-grains and 30 per cent of vegetables never make it to the marketplace and are wasted. Indeed, the sector is looking for a major overhaul not seen since the Green Revolution.

Our dismal warehousing facilities have been a reason for distress sales by thousands of hapless farmers. If not a panacea, we can at least expect some sort of a start, aided by the investment in infrastructure that large foreign retailers are slated to make. In Brazil’s case, 30 million people have risen out of poverty since 2003 and created a new middle class. China has witnessed rapid urbanisation along with the growth of organised retail. We hope for a similar story in India.

A burgeoning middle class, popularity of nuclear families, and increase in disposable income, aided by a drop in fertility rate (over 15 per cent in the last ten years) and increase in women workforce have created a $400 billion-plus retail industry with huge potential. The demographics indicate a low median age of 25, promising demand for a diverse basket of goods.

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