FDI in retail?

A question that has been in the media for quite some time now. After some study and introspection, this is what I think about it:


FDI must be allowed in all forms of retail in India:

1. Single-brand retail : 51% should be hiked to 100%
2. Cash-and-carry : 100% FDI status quo be maintained
3. Multi brand retail : No FDI currently, initially 49% should be allowed. Later depending on the expansion and macro environment factors, it can gradually go up to 74% and finally 100%.

FDI in multi brand retail should be opened up gradually. The government should allow 49% initially so that large MNC retail giants can forge tie ups with big local players in India. This would help in technology transfer, strengthening of supply chain systems and bring fresh capital that is badly needed for expansion. Between 30-40% of post-harvest produce goes to waste in a country where nearly half the people are malnourished. This would help tame double-digit food inflation that pushed the central bank to raise rates five times since March. A more organised retail sector, which currently is only around 5% of total retail, would also improve tax receipts. The move could generate huge employment in the multi-brand retail sector and, while fears of job losses for smaller outlets are real, analysts have often played down the impact. Farmers may also benefit because they could sell direct rather than relying on middle men. Political unrest would be near-inevitable. Manmohan's government has grappled with huge strikes and protests over soaring food prices and fuel reforms. Even if he pushed the reform through, huge upheaval could force the government to backtrack.Like insurance, retail is a capital-intensive business and hence FDI is a must.


However, the govt. needs to realize that allowing FDI in multi brand retail is not going to be the PANACEA. The rural agricultural infrastructure is far from acceptable standards in India. Expecting retailers to turn around everything is not realistic. Hence significant investments should go into improving the rural agricultural infrastructure. Only then will the farm-to-fork model of modern retail yield its benefits fully and rein in the spectre of inflation.