FDI in Retail: Who Will Gain -- Giant U.S. Stores or Poor Indian Farmers?

Irrespective of the wide opposition to it, the Manmohan Singh government in India is likely to go ahead with its decision to allow foreign direct investment (FDI) in multi-brand retail trade.

When the government's allies and opposition parties say the move will be disastrous to the country, they fail to note its positive impacts on the economy.

The government is struggling to control the inflation which has been hovering around the double-digit mark since December 2010. According to the Reserve Bank of India, the FDI in multi-brand retail will help control the inflation if it is implemented properly. Globally, it is considered that if (FDI in multi-brand retail) effectively implemented, then prices decline. So, if you are able to pass on the benefit to customer, then prices come down. And if prices fall, so will inflation, says RBI Deputy Governor K C Chakrabarty.

Parties opposed to the move are pointing that it will be suicidal for small and marginal farmers and would affect thousands of traders in the sector. This argument doesn't hold much water since the FDI in retail will ultimately liberate the farmers from middlemen. It will ensure proper price for their produces.

It is a reality in India that a farmer is getting only thirty three paise for every rupee spent by a consumer. It is time this situation changed, considering the hardships of farmers and farm suicides.

There is an obligatory provision to allow FDI in retail; i.e., 50 per cent of the investment should be in rural backend infrastructure like cold storages. It has to be noted that India loses perishable goods worth thousands of million rupees annually in want of proper infrastructure.

The government's decision would pave way for global retail giants such as Wal-Mart, Tesco and Carrefour to set up their mega store retail chains in the country. The initial estimates by the government is that it will create over four million jobs in the small and medium industries and another 5-6 million jobs in the logistics sector in the coming three years, according to Commerce and Industry Minister Anand Sharma.

Though this can be a tall order to achieve, certainly it will boost the employment opportunities in the rural and urban areas of the country. The opening up of the multi-brand retail sector can be the right move to help farmers. It will also generate employment in various sectors, including agro-industry and food processing. It is also the correct step to support and promote infrastructure, including cold chains, warehousing and logistics.

As of now, there is a population yardstick of one million inhabitants to make a city eligible for the FDI-backed multi-brand retail stores. As a result, cities like Chandigarh, Guwahati, Solapur, Bareilly, Mysore and Aligarh will miss out on the opportunity.

Political parties and leaders who oppose the move should study and understand realities in the country and support and augment the actions needed to ensure that the decision is implemented in the right manner. If executed in the right way, it is certainly the step ahead in developing the much desired rural infrastructure and also keeping inflation in check.