FDI in retail – My solution for FDI problem

FDI in retail – My solution for FDI problem

Of late, if there is one thing which is stopping the business in Indian parliament and running high business in media, then it has to the recent FDI (foreign direct investment) regulation in retail. There has been a lot of being discussed and opposed about implementing the FDI in retail. Before I proceed further, let me give a brief introduction about it.

So far, Indian law does not allowed any multi brand foreign companies like Wall mart, Tesco e.t.c., to sell their products to the end users directly. And the single brand foreign companies are also allowed only to have 51% stake hold. The new law, which the government has proposed will allow these multination brands to sell their products directly to the end users and can invest in the retail sector in India.

Pros for this law

For India:

è The investments will increases, which will lead to increase in GDP and other factors.

è Increases the number of jobs.

è Can aid famers, as there will be huge competition and demand for goods.

è A giant step forward in retail sector

For common people:

è We will have different options of shopping, most of the foreign products will be cheaper.

è Soon we might have big sellers setting up branches in all major areas, which mean easy access for all in areas nearby.

è Probable reduction in price because of competition and more offers.

Cons for this law

è All local small scale retail business will be affected.

è People depending on these local small scale businesses will be affected.

è The distribution and dominance of Foreign products will be more than the local products.

In a paper based profit & loss calculation, this FDI will always end in profit for India. India cannot afford to lose the huge investment, which will come through this, but on the other side, India cannot do this in compensation of spoiling thousands of small scale business & its dependent people. A considerable solution has to be done to compensate both, and my view of this compensation is penned below.

My solution - Doing an area action like 3G (No I did not mean the scandal happened like 2G J)

Government can adopt the similar procedure like spectrum distribution, where the areas can be divided and then each area can be actioned. Only the sanctioned party can setup store in that area. This will avoid too multi brand shopping stores to be in one place and killing the business of local and at the same time, it will allow these multi brand store to function, allowing the FDI to flow through. Some more ideas are

è Areas only over and above a fixed sized of population, say 1 lakh, and should be sanctioned to have these stores.

è An area should be sanctioned to only one or maximum two different parties.

è Only one store should be allowed for a particular area say one store for every 5km.

è The amount obtained from the area action will be another earning for state and central govt, which can be used for that area development.

è On top of this, if a product sold by these companies is developed or produced in that area, then the particular percentage of that product sold in that store, should be bought from those in that area. For eg, if an area produces turmeric and the store is selling turmeric, then at least 10% of the turmeric sold in their store should be from that area. This will improve local businesses.

By this way, we can allow both FDI in retail and also improve the local small business as well. Your comments are welcome.

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