FDI IN ORGANISED RETAIL TO GENERATE EMPLOYMENT, BUT SHOULD NOT DISPLACE ONGOING RETAIL ACTIVITIES KAMAL NATH INITIATES PUBLIC DEBATE ON FDI IN RETAIL FICCI SEMINAR ON RETAILING IN INDIA
Date : 23 Feb 2005
Location : New Delhi
Initiating a public debate on the subject of foreign direct investment (FDI) in retail, Shri Kamal Nath, Union Minister of Commerce & Industry, said today that FDI in organised retailing would generate employment, both direct and indirect, but there was no question of it being allowed to replace or displace existing players. It must add to economic activity, Shri Kamal Nath said while addressing the Seminar on “Retailing in India: A Government Policy Perspective”, organised by the Federation of Indian Chambers of Commerce & Industry (FICCI) here. Shri Kamal Nath said that FDI in organised retail sector would also lead to creation of indirect employment in support of activities throughout the supply chain – starting from producers to packaging, storage, transport and other logistic services. At the same time, domestic retail industry must have a level playing field and, therefore, “it is imperative to immediately identify and implement those policy initiatives which are required to give a boost to our own domestic fledgling organised retail industry by providing them the desired level playing field”, the Minister said.
Noting that strong arguments were being advanced both for and against for FDI in retail trade, Shri Kamal Nath emphasised that the government had an open mind and would like to do what was best for the country. He said that the government would like to encourage this debate in the media as well as in the public, between economists and the stakeholders. “We are very clear that if at all FDI is permitted in retail trade it should lead to incremental economic benefits and not substitute on-going activities. There is no question of replacing or displacing what we have; it must add to economic activity. Any strategy in the direction of FDI should ensure that domestic players are not unduly displaced and sufficient opportunities are available for the growth of domestic players. Constructive suggestions and inputs from all stakeholders would be extremely valuable in shaping our policy”, the Minister said.
The Minister took note of the various view points expressed by the critics that FDI driving modern retailing could only expand by destroying the traditional retail sector. He noted the apprehensions in certain quarters that it could lead to unfair competition and ultimately result in large scale exit of domestic retailers, especially small family managed outlets and that the global retail chains would use India as a dumping ground or outdated products. He also noted the suggestion by some that India should permit FDI only high-end retail or branded or luxury goods, since this would not displace Mom-and-Pop stores. The counter argument given to this was that such FDI would only encourage imports without the benefit of local manufacturing or backward linkages to the agriculture sector.
“The benefits of a larger organised retail sector are several. The most obvious benefit is to the consumer, who gets a better product at a cheaper price…. But the greater benefit is the expanded reach and increased volumes that organised retail can tap. Increased volumes translate into more manufacturing, more jobs in the industry, more prosperity…. There is another aspect too. International experience has demonstrated that the only way that farmers can get better prices for their products is through improvement of the value-added food chain…. It is only an organised retail sector, which can provide the forward linkages for mass marketing of processed and packaged goods. So, when we speak of the retail sector an important policy objective is also the agriculture sector. It is only when food processing and packaging takes off in a big way that we can hope to give the agriculturist his due”, he said
Fact Sheet on Retail Sector
Only 2% of the retail sector is in the organized segment concentrated exclusively in the larger urban conglomerations.
In fact, only 4% of Indian retail outlets occupy an area of more than 500 sq. ft.
The volume of retail turnover is estimated at 4 lakh crore rupees a year, constituting 10% of our GDP. After agriculture, the retail sector is estimated to be the largest single sector, both in terms of turnover as well as employment.
The importance of the retail sector in the national economy is not in dispute. All economists have agreed that giving the retail sector a thrust will not only result in boosting the economy, but also that the retail sector has the potential to be leveraged in order to rejuvenate specific targeted sectors, including the rural economy.