Allow FDI, in Retail Too!

The inclination of the Modi government is to open India for foreign investment. It is undeniable that Modi has done a masterful job in selling India, abroad. He has rightfully invited one and all to invest in India.

Modi realized intuitively that India needs massive doses of investment if it is to create jobs and lift its citizens into prosperity. The way to carry forward this agenda is to abolish controls and bureaucratic hurdles in the way of investment coming in and, yes, that applies to the retail sector as well.

The Protection Argument Doesn’t Hold

There is a vociferous lobby which, in the name of protecting local small vendors, resists any move to allow foreign investment in retail. Are they justified in their demand to keep retail off limits to investment from abroad?

The answer: a resounding NO. Yes, there may be some jobs lost, even though that is far from certain. The mom & pop stores provide a valuable service by personally knowing their customers, selling in micro quantities, providing credit to their regular small customers and being near them. In retail, location, as anyone will tell you, is everything.

The large retailers, the biggest of them bring Wal-Mart, can only open a few outlets and, that too, away from the expensive center-city locations. They shall, at least in India, not be in a position to affect our kirana stores.

However, what they shall do is to create a technology-driven supply chain, bring products from all over the world for the benefit of the Indian customer, and even more importantly, they shall take India’s products to the world, fulfilling Modi’s desire for “Make in India”.

Is This Merely Theoretical?

Let us look at the example of China. Its population is comparable to India. Around 45 years ago, its per capita income was comparable to ours. What did it do? It opened itself to foreign retailers like Wal-Mart. Even as these foreign companies established mega outlets all over China, they created a supply chain of mega suppliers within the country, to supply not only these stores within China but their stores across the world, and particularly across tens of thousands of their outlets in America.

This revolution passed India by. It was not India, but China that became the world’s factory. Did China lose employment? Not at all. It moved millions of people from agriculture to industry, boosting productivity, making China grow at over 10% per annum to take it to a position where today with a per capita income of US$9,000, it is five times richer than India.

It is time for India to seize the movement, open retail and all other sectors to 100% automatic foreign investment and begin to fulfil Modi’s vision of “Make in India”. Do it now, not tomorrow.