First of all, for the uninitiated, FDI stands for Foreign Direct Investment, as opposed to FII (or Foreign Institutional Investment - Thanks for the correction Chaudi!), of which a lot is being heard with respect to the stock market. So, basically FDI means foreign players (of the corporate type) are allowed to come to India and set up shop. FII means foreign investors are allowed to buy & sell securities (shares, bonds, derivatives, etc.) in Indian stock markets.
Okay, so back to the hot question - FDI or not to FDI in retail. I went through an exhaustive presentation prepared by ICICI bank which you can find here. So basically they and everyone else on the net are crying for FDI like a sullen child for the one lollipop he just has to have!
To summarize them all, the various arguments given in support for FDI in retail are:
- Improve competition in the retail sector
- Develop the market
- Greater exports as the global players will start sourcing products from Indian companies
- Employment generation, with possibly higher wages
- Lower prices for consumers, more choice for consumers, higher spending by consumers
- Tourism Development (!!)
- Development of agriculture and processed food sectors in India
- Increase in tax collection
Can't Indian players, such as Pantaloons, Big Bazaar, Vishal Mega Mart, etc. generate employment? Can't they develop the market? Aren't they already doing that? Accepted, that if we allow foreign players to enter the market the market will grow at a faster rate and employment generation will be faster. But shouldn't we give Indian companies a chance to develop and mature before introducing the competition?
If, at this nascent stage, foreign giants like Wal-Mart & Carrefour are allowed to enter Indian markets they'll wipe out the Indian players. These global players have years of experience in the retail sector. They weild a lot of corporate muscle. They just have to enter the market and replicate their business model, supply chain, etc. Indian companies on the other hand might still be struggling with their supply chains and sourcings & procurements. There's no chance they will be able to stand up to the might of these global giants.
With FDI in retail, it's being touted that Indian exports will increase, since global players will start sourcing products from India (whch means that they will buy Indian products and sell them in foreign markets). Does anyone really believe that crap? How many companies will prefer China as their sourcing destination vis-a-vis India is anyone's guess! Did the government give enough incentives to the Indian manufacturing sector to develop? Indian labour laws are being changed to attract foreign investments! Why the fuck can't they be changed to benefit the Indian manufacturing sector?
Can't Indian players consolidate the fragmented retail market so that tax revenues increase? Can't they offer lower prices to consumers? Big Bazaar is already doing that! Why do we need a Wal-Mart to give us lower prices. Why now?
Wouldn't it be better if the Indian retail sector is captured by a number of Indian retail chains instead of foreign players? Wouldn't it be better if instead of killing Indian retails chains in their infancy they're given a chance to capitalize on the Indian markets and perfect their business processes in one of the largest and fastest growing markets of the world. And then to make foreign direct investments in other markets.
Don't you think India needs more TCS's and Infosys's? And not only in the IT sector.
