Is FDI in retail a death knell for SMEs?

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: Various ministers of the present government are proposing FDI in retail. We believe multinational retail and WB-IMF lobbies and some self-serving bureaucrats are supporting it. This proposal will create multiple East India Companies in our country and affect livelihoods of 1.2 crore small retailers. Isn’t the proposal anti- national?

—Rakshpal Abrol, president, Bombay Small Scale Industries Association, Mumbai

The idea that there is a multilateral conspiracy in allowing FDI in retail is too narrow a view. Let’s dwell into the issue pragmatically. First, FDI in retail was allowed till 1997, the year when India agreed to remove quantitative restrictions (QRs) on 2,700 items, mostly consumer durables, over a period of five years. Perhaps, the move was to address fears of mass import of consumer durables by large retailers. There are already many foreign retailers who secured permission before 1997. Even now FDI is allowed in retail though with certain conditions, e.g. if the marketed goods are manufactured by SSIs. And100% FDI in wholesale trading is already permitted, as in case of ‘Metro Cash n Carry.’

Second, there is no restriction for Indian large corporates to enter into retail. Tatas, ITC, Raheja, RPG, Hiranandani, DLF etc have massive expansion plans and the capability to invest billions of dollars on their own. Our urban markets are already under transformation with modern format retailers such as super markets, department stores, speciality chains, besides ‘company owned-company operated’ stores, as well as dedicated brand stores.

Third, look at the impact of stores like Wal-Mart on small US retailers: Overall, retail sales increased substantially. And, retail sales were adversely affected in areas such as speciality stores, apparel, grocery etc. but, increased in general merchandise, home furnishing, food and drink etc. (Centre for Applied Economic Research, Montana State University, USA). The decline in sales in a few key items can be explained: American companies were not able to compete in areas like apparel and grocery, which were sourced by large chain stores from countries like China, while small retailers could not import.