FDI in retail could help consumers, farmers

 | February 25,2011 05:47 pm IST

Consumers could benefit with prices coming down and farmers get a better deal for their produce if India allows foreign direct investment (FDI) in multi-branded retail, says the Economic Survey 2010-11.

 

"Permitting FDI in retail in a phased manner beginning with metros and incentivising the existing retail shops to modernize could help address the concerns of farmers and consumers," said the document tabled by Finance Minister Pranab Mukherjee in the Lok Sabha Friday.

 

"A quicker, method to curtail the margin between farm gate and retail prices is to bring in modern supply chain management systems and retail sellers into the picture. A quick way to get at this is to allow foreign direct investment (FDI) in multi-product retail into India," it added.

 

The annual report on the economy, however, called for regulatory measures to be in place before any move to open up the sector.

 

Allowing foreign players into multi-branded retail has been a hotly debated topic with those opposing it arguing that global retail companies would wipe out existing small mom-and-pop stores, thus taking away livelihood of millions of people.

 

Domestic trade associations have also warned that big retail players would eventually control pricing and use their huge procurement requirements to bully farmers into selling at lower prices.

 

But those in favour have been arguing that all such fears are unfounded and that entry of established global companies will strengthen India's weak supply chain, reduce wastage, bring down prices of various goods and assure farmers of procurement of their produce at right prices.

 

"We are at a juncture where FDI in multi-product retail is worth considering. It could enable farmers to get higher prices and consumers to have to pay less. As a first step, consider limiting international multi-product retailers to a few outlets in each major city," the survey said.

 

"This will prevent them from getting full control of the market and, at the same time, set an upper bound on the prices that other retailers will be able to charge for their products."

 

Currently FDI up to 51 percent is allowed in single-brand retail, while cash-and-carry stores can have 100 percent foreign ownership. However, none are allowed in multi-branded retail.

 

During the period, April 2006 to March 2010, foreign investment inflows into the retail sector are valued at $194.69 million, accounting for 0.21 percent of the total FDI inflows during this period.

 

FDI in retail trading is permitted in Brazil, Argentina, Singapore, Indonesia, China, and Thailand without limits on equity participation, while Malaysia has equity caps

 

Concluded.


on FDI in the retail sector.

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