51% FDI in Multi-Brand Retail, 100% in Single Brand Retail

Now it needs to be seen if these foreign retail companies can call shots in Indian market as now Indian government has opened the gates for Walmart and TESCOs around the globe to penetrate Indian market by allowing 51% FDI in retail. The cabinet has also allowed 100% FDI in single-brand retail, although the two recommendations consist of riders like 50% of your investment and jobs should go into the rural areas, 30% belonging to the inputs ought to be sourced from medium and small enterprises and investment in infrastructure.

What’s also vital that you note is the one of the riders in this recommendation is that such retail chains can only be opened in towns with population of more than 10 lakhs, restricting the target segment to only 51 towns in India.

Implications of FDI entry in Retail

• Now the important aspect to be considered is that there is an enormous difference between 49% and 51% as now management control will be wrested by these foreign companies. Now it appears Big Bazaar of Kishore Biyani and Easyday of Bharti group or as a matter of fact Reliance Fresh will have to bear the competition and we know that competition is good for consumers.
• Small traders are, however, a worried lot. "Small traders will not be able to withstand the competition. This will lead to the monopoly of foreign players and farmers will have to sell their produce dictated solely by organised retail," said Changdevrao Holkar, member of the board of directors of government-run National Agricultural Co-operative Marketing Federation.
• "The government should bring in legislation like the one for the small-scale industries, for protecting small traders before allowing FDI in retail," said Ajit Setia, a jaggery trader and president of Poona Merchants Chamber. "It can include provisions like declining permission to sell below a minimum price as in Germany, so as to prevent unhealthy competition."
• Small and medium enterprises are also apprehensive. "Foreign retailers will impact supply chains that are being fed by SMEs and there will be displacement of SMEs if it is not checked," said Anil Bhardwaj, secretary general of the Federation of Indian Micro, Small and Medium Enterprises. He said the government should start by imposing compulsory domestic sourcing requirement, as in the automobile sector. The provision for 30% compulsory sourcing from SMEs in the draft policy should also be gradually increased, he said.

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