Column: FDI walls restrict retail competition

(FE 29/06/2006) Mumbai - For all those politicians and academics opposed to allowing foreign direct investment in the retail sector, Mukesh Ambani’s announcement on Wednesday should come as another wake-up call. His Reliance Industries is to invest Rs 250 billion over the next four years in establishing a chain of retail stores, backed by an elaborate supply chain, through the country. Earlier, there was the news that Sunil Mittal’s Bharti group was firming similar plans, with an initial investment of Rs 60 billion. Shoppers’ Stop and Pantaloon are expanding with urgency; Godrej and Bombay Dyeing are moving into investing in malls. In sum, the anti-FDI rationale of protecting traditional retail and its associated jobs is idiotic — all you are accomplishing is to ensure a protected market for Indian corporates. This is the folly of the 1950-1990 regime repeated all over. Competition and market entry were restricted then and India kept in an artifical time-warp, in the name of the greater good, the Indian consumer’s affordable range and access to good products and services restricted, industry starved of ideas and the need for innovation.

To reiterate the point about organised retail: it forces producers to look at every single process to see if it adds value or not and how to do it better. Companies in countries where this is a settled process are constantly scouring the entire world to search for lower-cost, higher-quality products. We are talking here of hooking our manufacturers and our farmers to consumers through the planet. Supply chains will get upgraded on a scale we have never seen. Take the current national worry about rising vegetable prices and reflect that the difference between what is charged at even the wholesale markets and what the farmer gets can easily be around 400%. It is the farmer and the consumer who hugely benefit by reforming this chain; it is precisely this opportunity that has corporates so excited.

We’re talking of dramatic changes in technology through the chain, of hugely augmenting our productive capacity—retail has the potential to do to manufacturing and agriculture all that IT has done to services and on a vastly bigger scale. And that means the creation of jobs on the same scale—in factories, in fields, in transport, in supply, in servicing. There is an imperative need for the more far-sighted among our political leaders to realise the transformation is already on and to help those affected to cope. Integrate a phasing-in of full FDI as part of the transition.