India FDI Heats Up


New Orleans The India FDI Watch Campaign has followed the recent election results closely to see what the impact the Congress victory would have on our 4-year old effort to force any opening of the country to big-box retail, like Wal-Mart to be accountable and regulated. The action of a large parliamentary standing committee on commerce has provided us some real hope with their release of their report in recent days, indicating at the least there will be an important fight on foreign direct investment (FDI) relaxation on retail, and maybe some form of regulation has we have advocated.

The story in Live Mint gives a good sense of the power of the report, particularly its trashing of “cash & carry” used by Metro and more recently Wal-Mart to sneak in the backdoor.

House panel opposes foreign investment in retail
The committee says allowing cash & carry wholesale in India is nothing but allowing back-door entry of foreign firms into retailing

New Delhi: A Parliamentary Standing Committee has recommended a blanket ban on foreign investment in retail and has opposed even big domestic corporate entering the sector saying that it will lead to unemployment.

“The committee … recommend that a blanket ban should be imposed on domestic corporate heavy weights and foreign retailers from entering into retail trade in grocery, fruits and vegetables,” it said, adding that restrictions should be put for opening large malls by them for selling other consumer products.

The committee, headed by Murli Manohar Joshi, feels that “opening of foreign direct investment (FDI) in retail trade by allowing single brand foreign firms in India will result in unemployment due to slide-down of indigenous retail traders”.

The 42-member panel in its report on `Foreign and Domestic Investment in Retail Sector´ further said that the government should stop issuing “further licences for “cash and carry either to the transnational retailers or to a combination of transnational retailers and the Indian partner, as it is “mere a camouflage for doing retail trade through back door”.

The government may consider setting up a national commission to study the problems in the retail sector and to evolve policies that would enable it to cope with FDI, the Parliamentary panel said.
According to existing guidelines, FDI is prohibited in retail trading except for single brand retail in which 51% FDI is permitted.

Whereas 100% FDI is permitted under the automatic route in wholesale cash and carry trading.

The committee said allowing cash and carry wholesale in India is nothing but allowing back-door entry of foreign firms into retailing.
“Consumers’ welfare would be sidelined, as the big retail giants by adopting a predatory pricing policy would fix lower price initially, tempting the consumers,” it said adding that after wiping the competition from local retailers, they would be in a monopolistic position and would be able to diktat the retail prices.
It said procurement centres constituted by big corporates for making direct bulk purchases would initially pay attractive prices to farmers and cause gradual extinction of mandis and regulated market yards.
Unorganized retail employs over 40 million people, which accounts for 8% of the total employment.
“…the government should ensure that some in-built policy must be established to relocate or re-employ the people who are dislocated due to opening of big malls in the vicinity of their shops,” the Committee said.

“…there is a need for setting up of a retail regulatory authority to look into the problems and act as a whistle blower in case of anti competitive behaviour and abuse of dominance,” it added.
On the use of agricultural land for shopping malls, the Committee feels that diverting the land may not merely lead to reduction in production or income to farmers, it may affect the social and cultural life of farmers.

“The government should come out with adequate safeguards to prevent diversion of agricultural land for setting up of malls,” it said.

Looking at the body of the report there were two sections that jumped out at me, because they hit the nail on the head in terms of the urgent need for regulation before any modification in FDI, especially in section 2.11.

2.10 The Secretary, Department of Consumer Affairs submitted that unless there was a regulatory approach, it would be difficult to stop the entry of big corporate business houses in retail business.

2.11 The Committee felt that the need of the hour was to put into place strict regulations on the entry of big malls, viz. size of the mall, location of the mall from kirana shops, parking facilities, adherence of environmental norms, labour laws, etc., to ensure that cartelization does not take place. There is also a need for ensuring that these big organised retail brings latest technologies, which could be absorbed here and also that large scale unemployment, particularly in the unorganized retail sector, does not take place. A National Shopping Mall Regulation Act should also be enacted which could regulate the whole retail sector, both in fiscal and social aspects.

Our campaign will have to see what we can do to assist in the development of just the kind of national legislation that the committee is advocating.
This is not a done deal. There is a lot of work to be done!