Arguments against FDI

1) Will lead to mass-unemployment

The argument is that displaced retail-operators will not be absorbed
in other sectors. Thus FDI will lead to unemployment.
Although this unemployment argument seems flawed because
a. Walmart cannot open malls in every nook and corner of India. Their electricity, staff and
security costs will surpass their profit margins.
b. Customers cant go to Walmart on daily basis for attractive discounts because the petrol cost
(and time wasted in traffic) will negate the discount
on small purchase. So theyll be using local small-retailer for daily requirements of bread, milk,
newspaper etc.
c. Did STD booth-operators become unemployed after advent of mobile phones with zero
roaming charges and free incoming? Nope, they diversified and started running Xerox and
cybercafs.
2) Predatory pricing
Walmart or any other MNC retail mall, for the first 3-4 years theyll give heavy
discounts and seductive offers, even if they make loss in the deal.
Result : all the customers in a particular city are hooked to walmart only.
The smalltime retail players cannot run business giving such heavy discounts, they
close down. Once all competition is eliminated with this predatory pricing Walmart
will slowly stop giving discounts and recover their losses by increasing the MRP.
Since these big MNCs have deep pockets, they can affort this sort of loss. But in the
long term, they recover everything.
Same way once the small time retailers are out of business, Wal-Mart will start
exploiting farmers, paying them extremely low money for their produce, because now
Wal-Mart is the sole retailer in the city.

Counter arguments: Predatory pricing

Customer thinks of Traffic, time and petrol cost involved before visiting Walmart
everynow and then. Not like someone would go 10 kilometers, just
because the mall is giving Rs.3 discount on apple juice.
There is a Competition Commission of India to look into this matter. (earlier MRTP,
Monopoly and restrictive trade practices act)
Another example of Predatory pricing is our airline industry. One of the prime
reasons why theyre making losses.

3) India will become dumping ground for Chinese products

Dumping means, suppose a pen is sold for Rs.10 in China but they intentionally export it
to India at the price of Rs.5, in order to ruin the business
of local Indian pen-producers and to capture the Indian stationary market.
Some believe that entry of foreign retailers will facilitate the Chinese scheme of dumping
our market with their cheap products.

Arguments in favor of FDI in retail

1) No more wastage of agro-produce:

Post-harvest more than Rs. 1 trillion worth farm produce, especially of fruits,
vegetables and other perishables, is wasted due of lack of
storage and transport facilities.
More than 50% of this can be saved, if weve proper cold-storage facilities.
Government is not doing much about this and the private Indian players
do not have much money to invest in this cold-storage.
So if FDI in retail is allowed, the MNCs would invest in cold-storage chains.
Means lower wasted of produce, and more supply of fruits and vegetables. The
prices will go down.
Right now, 100% FDI Is allowed in Cold-storage chain, but foreign players are
not coming there because theyre not allowed to sell it in retail
malls. There is not much profit margin in operating a cold-storage alone. Itd take
years to recover the investment. Only if MNCs are allowed to sell
the produce as well in their retail malls, theyll feel interested in investing in this
cold-storage game.

2) Farmer gets more money for his produce

Indian Farmer doesnt have cold-storage or transport facility, if he grew 200 kilos of carrots, he
has no option but to sell it as soon as possible
before it get spoiled. The middle agent buy this produce for as low as 2-4 rupees per kilo, but by
the time it reaches market, the price jumps to 25-30
rupees per kilo.
3) No more intermediaries / Middle men in the chain= Lesser levels of Commissions
Right now Intermediaries [middle agents] dominate the value chain. They often their
pricing lacks transparency. They often run secret cartels, so
even in open auctions, farmers dont get good price for their produce.
Wholesale regulated markets, governed by State APMC Acts, have developed a
monopolistic and non-transparent character.
According to some reports, Indian farmers realize only 1/3rd of the total price paid by the
final consumer, as against 2/3rd by farmers in nations with a higher share of organized
retail.

4) Small and Medium scale industries

Example small time cushions, toys, shoes, plastic wares maker. They dont see much business
because they dont have the avenues to sell their
products. Big mall with big floor space, provides them opportunity to market their products and
get customers attention.
5) More competition = Better prices and products
Remember once upon a time, Mobile calls used to cost 7 Rupees per minute and
incoming wasnt free. Why? Because there was low level of competition.
Barely 2-3 players in the market.
FDI can be a powerful catalyst to spur competition.
Trickle down Theory
To open a big mall, walmart has to purchase land and construct a big building= lot of laborers,
masons, plumbers, electricians employed.
Same way farmers are getting more money so all these people have more money in their hands
and they use it to purchase bikes, mobiles etc. so more
demand and more employment. This is trickledown theory.

Suggestions for safeguards

Entry of foreign players must be gradual with social safeguards so that the effects of
labour dislocation can be analysed and policy fine-tuned.
Foreign players should initially be allowed only in metros cities only.
Gradual opening of the retail sector over a period of 3-5 years to give domestic industry
enough time to adjust to the changes.
More stringent Compulsory corporate social responsibility requirement
5. Regular monitoring of mall-inventories to see that India is not used as dumping ground
for Chinese products.

Scenario in other third world countries

FDI is permitted in the retail sector in Brazil, Argentina, Singapore, Indonesia, China and
Thailand without limits on equity participation (that is
100% FDI allowed)
Thailand: Since 1997, 100% FDI. Positive result: Thailand has now become an important
shopping and tourist destination.