FDI in Retail Alka Parikh

Allegations against Walmart Predatory Pricing – selling goods at very low costs Using monopsony powers to force suppliers to provide large discounts Very low wages Only part time workers Making full time workers to become hourly workers at will

Allegations contd Working conditions: No lunch breaks or rests were allowed in some branches Using child labor and illegal migrant laborers Walmart imports most of its products. It is a bigger trade partner of China than Russia, Australia and Canada!

Criticisms of FDI in retail 4 crores employed in kirana shops Can FDI actually create 1 lakh or more jobs directly a year? (2000 workers per store) And many more jobs created indirectly. But then jobs will be lost also. Jobs created for the young and the middle aged would lose out 49% stake will still be Indian. But the Law does not say for how long. The share can eventually be bought off

Criticisms contd Farmers might not benefit. Monopsony powers can actually make them lose out The stores might not buy directly from farmers but from wholesalers With its deep pockets, Walmart can sustain losses for many years till immediate competition is wiped out. It will buy big from India and mainly abraod and sell low

Criticisms contd Preadatory pricing will not allow small kirana shops to stand in the market Why do we need foreign companies in retail? We are taking care of our markets well ourselves with the domestic organized chains like Reliance Fresh and big Bazaar and with our kirana shops and vegetable vendors It is reported (though not conclusively proved) that kirana stores in the vicinity of such large stores have suffered losses

Positives Inflation can be tamed because wastage would reduce – provided they control a large share of the market Creating effective supply chain 100% FDI in wholesale and 51% in single brand retail already exists, not much of an impact felt Once they come here, stores like Walmart can start sourcing their supplies from local manufacturers thus increasing employment and exports and national income We will learn about quality standards and cost competitiveness It actually might create jobs for the youth, thus increasing employment opportunities

Positives Today Walmart and Bharati Enterprises have a wholesale outlet and that stocks 95% of products that are Indian

Pressures FDI inflows were declining in 2009 and 2010. Recovered a bit in 2011. Again by May 2012, decline of about 50%, further decline of 78% in June. Rupee was depreciating. Deficit increasing to more than 5% of GDP TIME magazine cover: The Underachiever Obama talks about India needing reforms, specifically FDI in retail

Regulations of FDI in retail 30% has to go the medium and small businesses At least 50% has to go to backend infrastructure including cold storage and safe transportation Only one store per city and that too not in an area of certain density of structures 49% stake should belong to an Indian company

Regulations Calculated risk: We allowed investment in wholesale, partially in single brand retail and only after tasting waters we are going for multi-brand retail