The Indian Government agreed on Thursday to allow mono-brand retailers (i.e. Nike, LVMH, etc.) to have full participation of their investments in this country. Before, they could have only 51%, leaving the remaining 49% to an Indian partner. On the other hand, multi-brand retailers (Walmart, Department Stores, etc), can have a participation of 51% (up from zero).
This has huge implications on the retail and distribution status quo in India, where small shopkeepers and entrepreneur retailers can be largely affected. Some regulations like allowing this FDI easing in cities of over 1 million people will be implemented, but it is still paving the way for a full dominance of foreign retailers that have proven to be harmful for the local industry.
From the supply side, large purchasers will benefit from economies of scale and source from local producers/manufacturers, thus, offering more competitive prices on a country that is witnessing inflation levels of 8-10% each year. From the demand side, consumers will have more options and benefit from more competitive market prices for commodities.
It is estimated that 25 to 35% of the agricultural perishable production, for example, is wasted because of the lack of infrastructure and cold transportation in the country which causes prices to rise because of this poor distribution systems, putting pressure on prices and causing inflation. But on the other side, only about 10% of the working population in India pay taxes, which makes it complicated for the Government to allocate the necessary resources for developing infrastructure. It is in fact a vicious cycle.
It is particularly strange that all of this is happening just when “overall foreign direct investment dropped 28% to $29.4 billion” compared to the last fiscal year and when the Indian Rupee has depreciated from 45 to 52 rs/ dollar and 61 to 71 rs/euro in the last six months. Still the approval will be determined in the next days, as opposition parties are expected to intervene to put a limit to this announced measures.
It is true also that if India wants to become a big economic player they have to be competitive within and across their own markets, with IT being the best example of this leadership and innovation in a global context. The problem is that many people often say “India will be an economic power”, but they fail to understand that increased consumption is not the same as to be an economically stable country, with dramatic volatile inflow and outflows of capital. For an example of such volatility, please refer to the exchange rates example in the previous paragraph. India will be big, no doubt about it, but none of us will live to witness it.
Lastly, my problem with this FDI easing is that I have seen large retailers destroy commercial communities, once families and entrepreneurs, ending up becoming
slaves workers for this global chain stores. Now, I am totally with India on this one, but seems like India hasn’t learned anything from the West.
And if you want to argue that this poll by the WSJ India could have been answered by foreign capitalist, then I invite you to step into a shopping mall in India on a Sunday so you can witness who is really attempting against the local culture and traditions. In fact, if India ever dares to blame the west for conquering them (again), they shouldn’t blame exactly the Westerns, but perhaps… themselves.
“Consumerism is no longer a dirty word, and the notions of Gandhian austerity and Nehruvian socialism have been definitively disowned…” … – Pavan K. Varma, The Great India Middle Class