Why in News: Dec 2012 India allowed 51% in FDI in muti brand Retail.

In Jan 2012, we allowed for 100%

in single brand retail. FDI in wholesale trading permitted in 1997
India Retail Market: 15% of GDP and estimated to be $450 bn and top 5 retail markets in the world with
1.2 bn people
Problems with current setup:
Inefficient mechanism due to lack of investment in Logistics of retail supply chain -> limited cold chain
infra
India second largest producer of fruits and vegetables-> lack of storage heavy losses.
Post harvest losses of produce estimated to Rs.1 trillion -> 57% avoidable
Intermediaries: They dominate value chain. Flout mandi norms and lacks price transparency.
APMC acts developed monopolistic character-> Avg price farmer get is 15% of what consumer
pays!
Intermediaries add no value but only adds to final costs -> buy products at low costs. Organized
retial with modern procurement, processing, cold storages, transport and delivery adds value. It
uses modern technology with mimimum wastage
Once big retailers do this-> small retailers would copy this model to improve efficiencies and
boost margins -> also more stability of prices
MSME sector: This sector suffered due to lack of branding and avenues to reach markets due to lack of
access to technology and marketing. FDI can help this area.
Rational for FDI in retail:
1. Large investments needed for post-harvest and cold-chain infrastructure near farm fields. FDI is
imperative to fund this.
2. Investment by domestic players will be ineffective is FDI is delayed. International retailers
needed to be brought here for Indias advantage
3. Direct but from farmers, less cost to consumer and less losses, improves storage capability and
better safety standards
4. Removal of structural inefficiencies achieved with direct marketing, contract farming
programmes, predictable farm-gate prices
5. Need for yield improvement -> contract farming to disseminate technology how and promote
awareness, provide credit
6. FDI must to address concern of farmers and consumers. Welfare for all sections
7. Indian Truck Transport-> overloading, bribes(to politicians etc).
8. Assured quality
Argument against FDI :
1. Lead to large scale job losses. In US and Europe small retail is wiped out. SE asian countries
imposed stringent zoning and licensing to restrict growth of supermarkets after small retailers
getting displaced. India has 11 shops for 1000 people (1.2 crore shops employing 4 crore people
-> 95% run by self employed)

2. Predatory pricing by global giants to create Monopoly -> prices controlled by foreign orgns.
3. Jobs in manufacture will be lost because international retailers buy from outside, not from
domestic sources -> experience of many countries
4. They are only required to create storage facilities and cold chains -> they cant build roads or
generate power
Other countries experience: Though china and Japan opened FDI in retial, they put regulations on size,
location, working hours, pricing etc for large retailers to balance everyones interest.
Preconditions of India as safegaurds
1. Minimum FDI investment is $100 mn
2. Only allowed in cities with more than 1mn people
3. Only allowed in states who allow FDI
4. Minimum 30% of value to source from manufactured goods, barring food products from small
and medium enterprises.
5. 50% mandatory investment in backend infrastructure including cold storage and warehouse