FDI in retail in India

There are a few ways for local produce or food item reaches your table from farm.

  1. Farmers sell it to Middle man- they sell it to the retailers, and you get it from there. This is how most of India works. 
  2. Farmers sell it to you directly- This is like buying from a Farmers’ market.
  3. Farmers assume the role of the middleman and may be also the retailers- This is how co-operatives work. Most co-operatives fail due to inaptitude of the parties involved, but it is possible to correct that with better business governance and management and this has been demonstrated clearly by the Amul model in India.
  4. The Retailers assume the role of the Middleman- this is the model on which large organised retail segment works across the world mostly in the developed world. Don’t make a mistake of believing there’s No Middleman. There is still a Middleman in principle because the retailer doesn’t sell the goods to you at the same price that they are buying it from the farmers- only here the same business outfit  earns the profit at both fronts rather than just one.
The present UPA Government of India is allowing 51% Foreign Direct Investment in retail sector in India. There are turbulences, oppositions from the ever opposing BJP and Communist parties. People who think of themselves as the ‘Thinking Mob’ of India are divided about this too. 
Most flawed line of thinking here are:
-“Genius Economist ManMohan Singh and Congress that brought economic reforms and market liberalisation in the past are bringing this in- so it must be good”
-“BJP and Communists are opposing it- so it must be good”
-“The present Govt is so corrupt and has lost all credibility for taking a decision of such immense measure and may have ulterior motives and motivations for this decision- so it can’t be good”
I concede, a discredited Govt can’t be trusted on policy, especially policy with huge implications and consequences. @DelAlpha
28/11/11 10:29 PM
What do you mean by Multi-product retail?
This needs to be defined in more categorical ways. Retail of manufactured consumer goods with foreign investment doesn’t sound like too bad an idea as that will create a product with a ‘Minimum expected’ standard, will provide more choices at lower cost to the consumer and will probably increase the spectrum of consumer goods available across the board in India.
The problem starts when you include local produce- food grain, milk, meat, fruits and vegetables and processed/ packaged food with these as ingredients.
FDI in food retail means you pay a foreigner middleman for what your neighbourhood farmer grows.
Look at the large-chain organised food retail business models like Walmart in US or Woolworth in Australia:
– They direct the amount and type of crops they will buy from the farmers (Remember the Indigo Farming in the British time? If not, look it up)
-They ‘Externalise’ the costs: This means that they have fixed contracts of buying and their retail prices with the farmers/ producers and if they sell the product at a cheaper rate on ‘Sale’ or there is a loss/ deficit by breakage of supply chain or any other reason, the Producer/ Farmer takes the loss.
This all will mean very attractive cheap rates for the consumer and most ‘Credit card wielders’ in India will be very happy with this. The large foreign retailers will give you great range of produce at low costs- not at their own but the farmers’ loss. And even if they do have to share these losses, they are able to take these losses without trouble for next few years- until the competition from other smaller chain retailers or local shops dies away- and then they implement the ‘Externalised cost’ model fully. The producer/farmer gets to bleed and the profits from home-grown food go overseas to bring the massively indebted American Economy up for a breather.
I am by no means asking to support the ‘Local Kirana-shop owners’ here- I know the cheating, food adulterer bastards too well for that. We do need highly organised retail framework in India for the Consumers and for the Farmers- and the most important values that it will bring are maintenance of minimum standards and sustainable supply-chain logistics.
We have had Ambanis, Tatas, Adanis and others getting into the large chain organised retail business in India. The Govt needs to promote these and develop a home-grown healthy competitive group of organised retail with farming and trade reforms to make them profitable. Bring in the logistics of inventory and supply chain management through reforms in home-grown large retails and that will do all that you’re expecting from Walmart like providing quality at affordable cost and create new jobs and whole sections of employment across India.
More to come…

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