ANNEXURE A RESPONSE TO DIPP DISCUSSION PAPER FOREIGN DIRECT INVESTMENT IN MULTI-BRAND RETAIL

CONTENTS Foreign Investment (FDI) in Multi-brand Retail Sector Annexure B Comments on Draft OECD Policy Framework for Investment by International Institute for Sustainable Development Annexure C Literature references Annexure D Literature references specifically related to Food/Grocery sectors Annexure E MNCs and Indian Policy Framework Article by Institute for Studies in Industrial Development

PREAMBLE 1. The Govt. of India declared its intention to allow FDI in Retail Sector sometime in early 2005. 2. The subject being of major importance for the country, it was expected that: a. The Govt. would have done sufficient homework to develop sound logic for introducing such a significant policy initiative, and b. The matter would be placed before the stakeholders and the general public for a wider consultations and views before finalization of a policy framework. 3. Ideally, the Govt. should have published a Green Paper on the subject with clearly defined objectives, policy options and their pros and cons and reasons for favoring FDI in Retail. 4. However, the Govt. rushed into this major policy initiative without any consultations causing justifiable resentment amongst stakeholders. 5. So far, the Govt. has failed to present any cogent and strong reasons to justify its decision to allow FDI in Retail on grounds of overriding public interest. Instead, it has chosen to present weak and confusing arguments in a haphazard manner and at the same time, already introduced policy changes in spite of strong and wide spread objections. 7. The Govt. also appears to have mixed up the issue of domestic investment with foreign investment in retail, trying to equate the two. BACKGROUND 1. The economy of the country is being progressively liberalized since the last many years. 2. Lately, the Govt. has also been trying to accelerate the process of globalization of the Indian economy. However, these attempts have met with serious objections and generated intense debate in certain areas, and rightly so. 3. While the decision to liberalize the economy is a public policy decision taken long ago, it must be recognized that the ultimate aim of all public policy is overriding public good. 4. Therefore, it is imperative that every major economic policy proposal must take into consideration the views of the stakeholders concerned as well as the views of the public. 5. As far as FDI in Retail sector is concerned, the decision to allow it appears to have been taken already without due consideration of the views of the stakeholders. FDI in two retail related areas was already allowed four years back and as far as FDI in multi-brand FDI is concerned, stakeholders views are being taken at the same time that a favorable policy announcement is imminent.

In the following paragraphs, some of the more important conceptual aspects of the issue are presented for serious consideration. Responses to Paragraph 7 ISSUES FOR RESOLUTION At the outset, it is pointed out that the Parliamentary Standing Committee in its Report which has been paid on the table f the Parliament has already rejected the proposal to allow FDI in retail after having considered previous reports commissioned by the Ministry from ICRIER etc. Therefore, the Discussion Paper ought to have stated the Governments views on the Committee recommendations rather than once again referring to the previous reports in this matter. 1. The response is confined to the first part of para 7.1 viz. Should FDI in Retail be permitted? The answer is that it should not be permitted in the near future. 2. The subsequent questions are based on the assumption that Government has decided to introduce FDI in Retail and the purpose of the Discussion Paper is confined to a discussion on the modalities for the same. In view of response at 1 above, these questions become redundant. 3. Trade Policy Issues: a. FDI in Retail cannot be seen as an isolated issue but must be considered as part of the larger global trade policy issues. b. India is potentially the biggest market and a foreign entity cannot be allowed entry into this market unless it is part of multinational trade negotiation where India gets substantial benefits in other areas c. An action of unilaterally opening up the retail sector for FDI has implications for the overall Trade Policy. This point of taking unilateral obligations which has been raised by many has been answered by the Govt. claiming that even if India was to autonomously liberalize the retail sector, it would not undertake bindings in the sector at the WTO. This explanation has very little logic. Once FDI is allowed, it would not matter whether or not the country takes a formal binding under WTO. Further, those who have already entered the country could hardly be asked to go back at a later stage. It also begs the question as to what would the country be getting from the global community in return for this gracious unilateral gesture. d. Reference is invited to the following very pertinent comments in a paper by International Institute for Sustainable Development: One of the
preferred negotiating positions now in the WTO on trade and services negotiations is for the inclusion of a provision on entrenching extant levels of domestic liberalization into the multilateral regime. In other words, this approach would see any levels of domestic liberalization immediately enshrined as a multilateral commitment that would then not be retractable. The policy flexibility that

4
unilateral liberalization implies would be completely removed. In the absence of a final result on this approach, any domestic liberalization by developing countries carries high risks of the loss of policy space for the future. (Annex. B) It is not

known whether the Govt. is conscious of this implication, considering its stated explanation above. e. Allowing foreign entities in Retail is a fundamental issue of Policy with ramifications and implications of a permanent nature. It has to be said that granting trading concessions and opening up the retail sector is not merely a question of securing more Foreign Direct Investments. Although the Government would like to confine its emphasis on the FDI aspect, the fact is that there are much wider issues involved with deeper implications. The policy change in the garb of FDI is in reality a significant shift and deepening of liberalization and is primarily to do more with trade policy, external as well as domestic, than finance. f. Another major issue to be considered is that the country has already proceeded on a liberalized economy model. Under this scenario, the market and consumer demand determine all activities relating to production and consumption and entrepreneurs are free to engage in areas in which they can profitably cater to the consumer needs. It is, therefore, not in consonance with the principle of liberalization that the Government interferes in this area. 4. FDI in Cash & Carry wholesale trade, which is essentially a precursor to opening FDI in Retail, was allowed by the Government from 1997 onwards. Between 2000 and 2010, a negligible 1.54% of total FDI inflows were received for this category. Therefore, purely in terms of FDI inflows, no significance can be attached to the same. The real purpose of allowing FDI in this area was presumably to get significant benefits. It is not possible to demonstrate the precise economic benefits that have already accrued to the country which would not have accrued in the absence of such wholesale cash and carry businesses with FDI. The Govt. also needs to justify that this particular area is incapable of being handled by domestic entrepreneurs. So far there is no evidence of benefits, if any, particularly those which can be considered relevant for a country of our size and addressing our national priorities have been shown. Therefore, this policy needs to be rescinded and reversed with immediate effect. 5. Similarly, FDI in single-brand Retail was opened up in 2006. A miniscule inflow of FDI has been received till date, which is 0.21% of the total inflows. There have been absolutely no benefits at all from allowing FDI in this area. No benefits relevant for our national priorities are likely to accrue in future as well. The only beneficiaries of this policy are the foreign brand owners only and not the country. Therefore, the policy should be rescinded and reversed. Any retailer interested in offering high value products to brand-conscious customers

5 can easily do so by recourse to franchise arrangements which are permitted. 6. It is submitted that neither of these areas are of any particular priority relevance for the country. It is submitted that like FDI in Retail in general, they do not bring benefits to the country or augment the economic development to justify opening up. The reasons are the same as advanced for FDI in Retail in general, which are shown to have no validity in the Comments below at the end of this Note. 7. The experience in the above two areas where policy was liberalized based on assumed benefits shows that such benefits are neither achievable nor material. Going by the experience gained already, it can be said that further liberalization of FDI in Retail would also not yield real benefits. 8. Experience of other countries Experience of certain other countries has been cited to prove that FDI in Retail has been beneficial to these countries any by implication, the same benefits will accrue to India. This is a fallacious argument. Firstly, each country has a different situation with regard to its overall economy, stage of development, peculiarities of manufacturing and trade sectors and retail sectors. Therefore, it is impossible to relate the experience of say, Chile, Thailand, Indonesia, Russia etc. where different set of conditions prevail. Secondly, if some countries have found benefits, there may be others who may have been impacted adversely or may not have received benefits. Therefore, benefits cannot be shown by citing countries selectively. Lastly, as far as China is concerned, the example is not appropriate at all because (a) it has a massive manufacturing base which makes local sourcing easy (b) it already created a huge domestic organized retail base before allowing FDI at a much later stage and (c) it allowed FDI only to comply with WTO obligations and it has a declared policy that domestic retail will remain dominant. 9. Major implications also for manufacturing sector: The global retailers who are planning to enter India are huge in terms of sales as well as the breadth of products they offer. Walmart, a single retailer had sales last year of $ 405 bn. against the TOTAL retail sales of $ 257 bn. for India as a whole. Even Carrefour, the next in line has annual sales of $ 125 bn. Therefore, they have enormous purchasing power i.e. bargaining power and are already sourcing from worldwide sources at the cheapest prices. Even in India, today one can find e.g. gell ink pen with three refills and one eraser pen retailing for Rs. 10/-. There is no way Indian manufacturers can compete with imports by the global retailers. Therefore, there would be a major threat to domestic manufacturers of consumer products. It is imperative that Government

6 comes out with supporting data that shows that domestic manufacturers will not become uncompetitive forcing them to close down. 10. Farmers will not benefit The assumption that farmers will benefit is simply not true as far as procurement is concerned. There is ample evidence from other countries that these benefits do not exist. Major implications for store space prices In major cities around the country, there is already a huge requirement for retail shop space. With the expected increase in domestic organized as well as small retail, there will be already a significant demand for store space which is and will push up store space prices to extremely high levels. If global retailers start competing for scare shopping space, small and medium retailers will find it impossible to secure store space and will be driven out. 12. Backend linkages cannot be attributed to FDI in Retail. Backend activities such as storage, logistics, cold chain etc. are essentially free standing business activities and in free market conditions, these activities will grow with the growth of retail trade regardless of the presence of any FDI in Retail. The argument that FDI in front end retail will help augment back end infrastructure is completely misplaced. 13. Restrictive Conditions will not work. Although several restrictive conditions to be imposed on FDI have been proposed supposedly to protect domestic players, in practice they can hardly be enforced as experience has shown. On the other hand, once a global retailer establishes base as a local entity, there is now way that any such discriminatory restrictions can be imposed or continued. 14. In sum, there are no benefits relevant to national priorities from FDI in multi brand retail. Absence of harm cannot be a justification for permitting foreign global retailers to secure a foothold in the country. DOMESTIC INVESTMENT IN RETAIL 1. In a liberalized economy, it is a given that domestic retailers, whether large or small, will have to find their own market space and build upon their relative strengths. In a free market economy, large players as well as small players will have to co-exist based on their own respective strengths. 2. When the principle to liberalize the economy is consciously adopted as the avowed policy for long, there is no scope, nor is it desirable, for

11.

7 Govt. policy intervention to totally prohibit or prevent the entry of a domestic entity in retail business, including large corporate retailers. However, it must be recognized that small retailers have proved to be a time tested vehicle to reach the consumers in every nook and corner of the vast country. They have been and will continue to provide the backbone of the retail business. Without the existence and efficiency of these small retailers, it would have been impossible for the manufactured products and agricultural produce to reach the hundreds of millions of consumers in every nook and corner of the country, be it cities, towns or villages with the poor infrastructure and logistics that the country is suffering from. Large retailers, by definition, will possess huge resources in comparison to the small retailers. These resources can and will be utilized to displace competition from the small retailers. Competition is the principle on which market economy works and it will be simplistic to assume that the large retailers will not use their resources to effectively fight with their competitors, including the small retailers, oftentimes unfairly. It is to be clearly recognized that organized retail will hurt small retailers, referred to disparagingly as mom and pop or kirana stores as well as retailers dealing with products other than grocery. Under the circumstances, public intervention for ensuring smooth functioning of the market and to prevent market distortion and restricting competition from small retailers by the actions of large retailers is essential and justified. It is absolutely necessary to ensure, to the extent possible, a level playing field in favor of the small retailers. The displacement of retailers by unfair means is particularly likely in cities and towns which would be the first and logical targets of the large retailers. Protagonists for organized retail (Foreign retailers or large domestic retailers) have been suggesting that the retailers in the existing format will not be able to reach the increased volume of products to the consumers. This proposition deserves to be totally rejected as evidence shows that the existing retail set up has successfully reached ever increasing volumes and varieties of products to consumers and continues to do so as of now. There is no reason to suppose that the existing retail formats will not be able to deliver the goods in the future by adapting to the changing situation. Even if it is assumed that the existing retail formats will somehow fail to reach the products into the market or otherwise fail to meet consumer expectations, the Govt. cannot and should not consciously encourage or facilitate the entry of large retailers (by whatever name called such as organized retail, modern retail format etc.). This is all the more so in the absence of a systematic study, other than random surveys and anecdotal opinions, to conclusively and convincingly prove to the people that a modern format is inherently superior and more suited to Indian needs and in Indian conditions. In free market economy, the

3.

4.

5.

6.

7.

8 market place will decide how the demand from the consumers has to be met and Govt. has no role to play in prescribing or even preferring a particular format such as organized retail. The producers will somehow find a way to service the market and may indeed, of their own choice, decide to use the organized retailers. Likewise, it is not necessary for Govt. to worry whether the consumers will get the goods or not. If at all, the concern should rather be for reaching PDS supplies to the common man. 8. It is emphasized that the actions or initiatives the Govt. does need to take, relate to preparing a legal and regulatory framework and enforcement mechanism for the same that will ensure that the large retailers are not able to displace small retailers by unfair means. There is no evidence that Govt. has even considered these issues. For example, even basic rules do not exist to prevent below cost selling nor are any reasonable restrictions placed to prevent large retailers from preempting valuable retail space, especially in cities. 9. Once the basic necessary framework is created, it would then be left to the marketplace and the producers and consumers alike to decide their preference for organized retail or small retailers. 10. Any policy preference for a modern format over the traditional format will mean moving away from the principle of non-intervention except to prevent distortions in the market place or to protect consumers, thereby ensuring smooth functioning of the market. These are the areas of public interest that it needs to keep in view as far as domestic retailers are concerned. The Govt. has no obligation, for example, to overreach itself to give the consumer a good shopping experience with modern retail format. 11. The Government ought to fulfill its primary responsibility by focusing on priorities such as creating proper conditions for orderly growth by improving infrastructure, apart from ensuring that the deprived millions get two square meals rather than worry about shopping experiences. 12. As in case of every business, some retailers may be obliged to shut shop over a period due to competition, whether from small or large retailers, which may be unavoidable. However, the Govt. cannot be seen to even indirectly encourage or accelerate that process with its own actions. FOREIGN INVESTMENT (FDI) IN RETAIL SECTOR 1. The old radical view of FDI suggested that all inward FDI is harmful and needs to be discouraged whereas the newer free market view generally favors encouraging FDI flows. 2. In the present state of development of the country it is useful to allow FDI as a broad principle, to enable the country to move forward economically.

9 3. At the same time, there is no case for allowing FDI indiscriminately in non- or low priority sectors or where there is no clearly proven and long term benefit to the country. 4. FDI is only means to a defined end and cannot become an end in itself. 5. FDI is not merely a question of means of financing of development activity but is primarily an issue of Trade Policy. 6. Every FDI inflow results in a foreign entity being allowed to benefit from the domestic market and repatriate profits out of the country for as long as the entity remains in the country. As experience has shown, many insignificant Foreign Investments made in low priority, low technology sectors are continuing to result in massive outflows of profits from the country year after year without any worthwhile benefit to the country. 7. For the above reasons, every policy decision allowing FDI in any particular area must be carefully considered and must have a prima facie sound and convincing justification by way of serving larger national interest. 8. The same principle applies in the case of FDI in Retail Sector. However, in this case, the Govt. has proceeded to open up the Retail sector, albeit partially, and is also threatening to open up further without first convincing the stakeholders likely to be seriously affected as well as the public. In doing so, it has unfairly placed such stakeholders in a situation where they have to justify and defend their own position, rather than the Govt. justifying its decisions. 9. The Govt. has been proceeding on the assumption that inviting foreign retailers is a nationally accepted development objective 10. In the last few years, there has been a shift towards increased consumer spending because of a wider choice of goods in the market and increased incomes, easy access to plastic money and other direct borrowing. The entry of the large Global Retailers who consciously try to lead customers to spend more and more with their aggressive marketing would significantly accelerate this trend. Allowing FDI in this specific sector pre-supposes, therefore, that the Government has consciously accepted the policy of encouraging rampant consumption growth that is inevitable with the entry of the global players and their methods of increasing consumption. This is a serious question involving fundamental philosophy of our economic development. It implies pushing up and accelerating consumption as a means to develop our economy. In a country which does not have an abundance of resources relative to its population, this can have profound long term effects. 11. Within the Retail sector, the decision will directly impact the livelihood of millions of persons dependent upon the existing retail structure largely comprised of small traders. The changes in the composition of retail sector following the entry of global retailers will bring about widespread changes in the employment pattern right across the entire supply chain, from manufacturing to wholesalers to intermediaries to retailers. The Govt.s assumption based on a few customized studies that there

10 would be no adverse impact may not necessarily hold and there would be likelihood of significant displacement due to the structural changes for which the Govt. does not appear to be prepared. 12. The policy has to be tested on the basis of convincing facts and concrete benefits, not exaggerated claims. As can be seen from the Comments at the end of this note on various justifications and arguments advanced by Govt., it is absolutely clear that all these arguments have no validity. The Govt. has failed to show that allowing FDI in Retail serves larger public interest or brings about any significant developmental benefits which would accrue only if FDI in Retail is allowed but not otherwise. 13. On the other hand, there is substantial evidence from experience in other countries to show that the stated benefits are illusory and further that the effects are likely to be exactly the opposite. This is particularly relevant in case of FDI in Food and Grocery Retail. The details can be seen from literature references and articles in Annex. B, C, D and E. Annex. D is specifically relevant as far as large retailers in food and grocery are concerned. 14. In an increasingly competitive world, transnational enterprises involved in Retail are primarily looking for remunerative markets with growth potential. Their sole aim and objective is to maximize profits and shareholder value for their businesses. They are not in the business of philanthropy and it is futile to suppose that they will help in the economic development of a host country. (Reference Annexure E) Any benefit if at all which may accrue to the host country is at best likely to be of peripheral relevance in the overall scheme of things. This is particularly so for a large country like India where the needs of development are not confined to irrelevant gains like giving consumers a good shopping experience. The development needs of the country are more basic and fundamental in nature. 15. Another important point to be emphasized is that the Govt. of its own has been trying to equate organized retail with FDI in Retail and has been using these two as synonymous. It has already been shown that the domestic retailers, even large corporate retailers will eventually grow. If at all Organized Retail becomes the format of choice for producers and consumers alike in the future, the domestic retailers have all the resources whether financial or managerial to meet the needs of the consumers. In a liberalized import regime with low levels of import duties, the domestic retailers are also in a position to offer high end products from global sources, even for the so-called high end consumers. Therefore, it is submitted that there are no benefits that can flow exclusively from FDI in Retail which cannot be obtained otherwise. The Indian entrepreneurs are fully capable of evolving on their own an appropriate retail framework that is adapted to the changing Indian needs and the Indian conditions.

11 16. For the reasons stated including the Strategic reasoning allowing FDI in Retail is absolutely unwarranted, whether in single brand retailing or multi brand retailing.
Comments on Govt. justifications favoring FDI in Retail Although the Govt. has chosen to present its arguments over a period in a haphazard and confused manner from various platforms in speeches in conferences and not in a logical, consolidated manner, the following are the main arguments put forth favoring FDI in Retail with short comments to refute them. Arguments and response The whole discussion on FDI in retail centers around one major issue, that of big retailers displacing the small retailers. This argument is cleverly trying to equate domestic large retailers with global retailers. It is true that the Govt. will have to safeguard interests of small retailers to the extent possible against domestic large retailers. However, this is not to say that global retailers can be allowed entry on the ground that even domestic large retailers will affect the small retailers. By inviting global retailers, the Govt. will exacerbate the serious problem of displacement and distress many times over and it would amount to a callous approach. A public policy decision cannot have the effect of weakening the weak. Foreign retailers cannot be simply placed on the same footing as domestic retailers who are there because they are national entities. One of the largest global retailers, Walmart, keen to establish base in India has annual sales 157% of the TOTAL INDIAN RETAIL MARKET. Organized Retail forms only 2% of the total Retail market This argument does not prove anything. First of all, organized retail forms only a small part of total retail simply because of historical reasons and because existing retail set up is effectively meeting consumer needs. Secondly, there is no basis to prove that organized retail is necessarily a preferred option. In fact, considering various issues such as land use, urban planning, transport economics, demographics etc. it cannot be claimed that this is the more appropriate retail format. China is allowing FDI in Retail freely, so what is wrong if India does it China opened up its Retail sector only a few years ago consequent upon its WTO entry. Prior to that, it has built solid manufacturing and infrastructure base with massive inflows of FDI which can be used by global retailers to source its needs for the local as well as overseas markets. Further, China already has very large retailers who can give the global retailers a run for their money. Lastly, even China is now looking to provide safeguards to slow down the growth of the global retailers. Retail is an important part of the economy. Organized retail (new synonym: FDI based Retail) will lead to all round benefits. Facts (what facts?) suggest modern trade including FDI will have a net positive impact on the economy. It goes without saying that retail is an important part of the economy. This does not by itself mean that FDI is relevant or necessary in this sector. If the nebulous benefits and

12
net positive impact do exist, the same can be equally achieved by domestic modern retail. There will be large scale employment generation There is no evidence of this happening because of FDI in Retail. Employment generation will directly depend upon the economic development and GDP growth as Retail is only the last link. There is no reason to suppose that global retailers can generate larger employment than domestic large retailers, relative to sales value. The employment potential in small retailers on the other hand can be relatively higher because of less automation and qualitatively different as it implies self-employment potential. There will be no displacement of existing retailers This is a grossly inaccurate and highly misleading argument. It defies common sense to suggest that global retailers will not displace existing retailers. Not only will they displace existing retailers over a period, they will also prevent entry of new small retailers. This problem in any case exists with respect to domestic large retailers and cannot be allowed to be aggravated. Significant backward linkages will lead to huge benefits Backward linkage simply means purchase by one sector from its suppliers or the use by one firm or industry of produced inputs from its suppliers. This is a truism which applies to sourcing of products by any retailer. The benefits of backward linkages accrue only if there is a significant vertical spillover gain for suppliers. There is no definite evidence of such spillover gains in case of global retailers dealing in thousands of products. On the other hand, there is evidence that such benefits are largely illusory and cannot be definitively linked to the purchases by the large retailer. Again, if there is a benefit, the same will accrue also due to the backward linkages with domestic large retailers. Our endeavor is to get better technology into India A global retailer is hardly likely to possess technology that will benefit the manufacturers of products. The technology they possess is to run their own business in a way that maximizes profits. Such retail management, supply chain management and logistics technologies or systems are user specific and the retailers are not in the business of sharing their own technologies. In any case, any technology in these areas or even the much touted cold chain technology, warehousing etc. is not rocket science and is easily available commercially. In any event, such benefits of technology are hard to define or specify, let alone ensure from the global retailers. We are keen to see that retail leads to modernization of our agriculture. Farmers will get a better price for their product. Modernization in this case apparently refers to cold chain, warehousing and food processing. FDI is already permitted in these areas between 51 to 100%. These are free-standing business areas not purely related to FDI in Retail. If technology is to be acquired, the same can be better sourced directly and more easily from suppliers rather than global retailers who in any case will have to rely on external suppliers of such technologies. It is also pertinent to note that many Indian entrepreneurs, with or without the benefit of FDI, are already in the process of establishing businesses in these precise areas, even without any FDI in Retail to support them. As to farmers

13
realization, this is a myth which has been disproved in many countries. Due to the intensely competitive situation brought about by the large retailers, the farmer frequently ends up getting even less for his produce. There is no evidence to show by way of logical calculations exactly how the purchases by foreign retailers automatically lead to higher prices for farmers and that too for all time to come. This is a benefit on paper and it would be unwise to decide on allowing FDI on the basis of such nebulous benefits which can never be checked or ensured. 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 While this statement is broadly true, it has no relevance to FDI in Retail. Value added food chain is a distinct and separate activity which is independent of any FDI in Retail. The consumption is growing in India and consumers, especially the growing middle class, are demanding new products The argument presupposes that the increased demand for consumption can be only met or better met if FDI in Retail is allowed. There is no basis for such an assumption. There is no reason to suppose also that new products supposedly demanded by middle class consumers can be offered by only global retailers and not domestic retailers. This argument also needs to be rejected at the outset. The consumer will benefit from lower prices Entry of large retailers and increased competition may enable the consumers to gain the benefit of lower prices. However, this is not specific to foreign retailer. The benefit comes by way of lower prices from the manufacturers and suppliers and scale economies and not from the foreign retailers pockets. Any gains that may accrue due to the supply chain efficiencies will logically be retained by the retailer towards profits, in a competitive market. Consumers will get a great shopping experience, a better variety and choice, so goes an argument. It is not the Govt.s responsibility to give the consumers a great shopping experience. Its responsibility is to ensure that millions of hungry souls get two square meals. A great shopping experience comes from the ambience created by the retailers by way of shop design, convenience and imaginative merchandising. The Indian entrepreneurs and service providers are fully capable of providing these as can be seen from the fancy malls and large stores coming up every day. FDI in Retail will increase the procurement of the global chains for their other markets. This is not true as the global retailers procure their requirements from a country based on pure business considerations and not because they are having a retail outlet in a country. All the global players source 95 per cent of merchandise locally wherever they are present This is another preposterous argument. It would, of course, be logical for a retailer to buy in the first instance from the country of location and it is absurd to present this as a benefit. The purchases by the retailers for the domestic market are ultimately

14
destined for the domestic consumer and not for the retailers own personal consumption. To the extent that this global retailer has a share in the local market, he would be simply replacing another retailer as a buyer. Government revenues will increase due to less tax evasion This is based on the assumption that Indians are tax evaders and foreign retailers are honest souls. This anti national argument needs to be condemned in the strongest terms. Significant inflow of Funds by way of FDI It has been suggested by the Govt. that FDI in Retail will prove to be a gold mine. In actual fact, as the experience of other countries shows, the actual investment is not expected to result in a significant inflow at all in the overall scheme of things. This has been shown by the experience in another country where after the initial relatively small inflow, all subsequent investments were made from the host country operations. In any case in the changed situation, the country does not need merely monetary inflows per se but inflows that enable specific objectives to be met. In this context, FDI inflows would be far higher apart from being fully justified in other critical priority sectors such as infrastructure, heavy industries etc. Investor confidence will increase if FDI in Retail is allowed This is a bogus argument. Is it being suggested that China, for example, received hundreds of billions of dollars of FDI in highly desirable areas because it allowed FDI in Retail at a much later stage? Will manufacturers looking to establish manuifacturing in India or looking to invest in a project not do so unless FDI in Retail is allowed? Conversely, just because FDI in Retail is allowed, would they feel more confident? Investment decisions are made not because FDI is allowed or not allowed in a particular sector like Retail. Investment flows on the basis of long term firm-specific perspectives. A fear-based argument is that if FDI in Retail is not allowed at this stage, the country might miss the boat There is no bus or boat going anywhere and there is no question of missing the same. Inward FDI in Retail from global retailers is essentially a market-seeking FDI. It is nave to suggest that investing in India is a now or never proposition. Even the President of Walmart stated that we would keep coming back to India because of its unbelievable potential. Foreign Retail is already allowed through franchises, so why not FDI? This is a non-serious argument at least from the point of view of the country. If there is no difference between allowing Franchises and allowing FDI, there is no need to permit FDI since Franchising is already permitted. Brand owners who are really serious about the huge Indian market would not be averse to franchising arrangements. The implied suggestion that a foreign retailer will not come unless FDI is permitted is also not true as seen from the case of one of the largest French retailers who is established in 9 countries including Japan only through its partners and franchises.

An earlier ICRIER study has supposedly pointed out that the ban on FDI in Retail has not acted as an entry barrier as the foreign retailers were entering through manufacturing, sourcing etc.

15 This is presented as a justification. If foreign retailers are already entering the country by way of FDI in manufacturing, sourcing etc., there is obviously no need to allow FDI in Retail sector as such.
FDI in Retail will be confined to metros or tier II cities or there will be conditions on floor area. It may be confined to food and grocery In fact, this is a suggestion exactly conforming to the preference of the foreign retailers as these are the most lucrative and easiest locations and product groups to establish their businesses in. Allowing them entry into these areas would raise the specter of these large retailers preempting massive premium real estate to the detriment of local players. FDI is being opened partially just to test the waters. Heavens are not going to fall if it is opened. This would again immensely benefit the global players, by giving them the opportunity to get a foot in the door and a finger in the pie in the early stages, gain invaluable market experience and entrench themselves at an absolutely minimal cost There would be conditions attached to their being allowed Various possible conditions have been mentioned including minimum capitalization, minimum store size, permission only for lucrative metro areas, limitation on numbers of stores, reserving of space for food items, limit of 49% or 74% etc. All these conditions are unlikely to be restrictive as most of them are precisely what the foreign retailers themselves desire. These conditions become relevant only if the so called benefits of the FDI in Retail are proved in the first place. There would be export conditions attached Every activity that in which FDI is permitted should have their independent justification as a free standing activity not linked to any other activity. Experience has shown that conditions to export or earn foreign exchange etc. are extremely difficult to enforce and impracticable to achieve due to very many factors beyond the control of the entity which is subject to such conditions. Therefore, FDI in Retail must be justifiable in itself and not as a result of any artificial compulsions for exports etc. No country has banned FDI in Retail It may or may not be true that no country has banned FDI in Retail. However, this cannot be considered a justification for a decision which has to be taken solely in our own national and public interest regardless of whether other countries find it in their interest. Public policy cannot be dictated based on what others are doing but based on independent and objective consideration of the countrys own needs.

Concluding comments India had already emerged as the most attractive retail market in the world ahead of China. India is regarded as the last great frontier. Its market potential gives the country a tremendous power and leverage. Instead of leveraging this position for substantial and concrete gains, the Government is keen to offer a share of this lucrative market on a platter to global retailers for ambiguous and illusory future gains at the same time relegating the indigenous entrepreneurs to a secondary position. The Government

16 seems to be ready to grant a share in the enormously huge and profitable Indian market to the Global players for the vague and nebulous promises held out by them and the Governments own imagination about the benefits such a move will bring. It would mean granting entry into a potentially huge market for FDI inflows which may not be more than just a few billion dollars at best. THIS CANNOT BE CONSIDERED A POLICY IN THE NATIONAL INTEREST.