100% FDI in Multi Brand Retail and E-Commerce - For and Against

100% FDI in Multi Brand Retail and E-Commerce – For and Against

Question - Cabinet had approved 51% FDI in multi brand retail and increased the FDI to 100% in single brand retail. Discuss the arguments in favour of and against 100% FDI in multi-brand retail. Also discuss the issue of FDI participation in the e-commerce sector.

100% FDI in Multi Brand Retail

Against:

• Liberalising FDI in multi brand retail will lead to closure of small shops across the nation and endanger the livelihood of humble grocery stores

• Though prices may go down initially, this increases inflation once multinational companies gain a foothold in the retail market

• Farmers may gain remunerative prices at first, but eventually big retailers will be in control

• MSMEs will become victims of predatory pricing policies of MNC retailers

• It will also stop established supply chains through encouragement of monopolies of global retailers

For:
• 100% FDI in multi-brand retail will lessen intermediaries between farmers and retailers, helping the former to get a fair price for their produce

• This will also bring down retail prices and lower inflation

• Larger retail chains will invest in supply chains and this will reduce wastage estimated at 40% for fruits and vegetables

• MSMEs will have a bigger market and access to better technologies and branding

• Much required foreign investment will enter the country alongside international best practices and innovative technologies

• 100% FDI in multi brand retail will also create employment rather than displacing those engaged in small stores

• It will promote healthy competition in the market, benefiting producers and consumers

E-commerce and FDI Investment

For

• FDI in e-commerce will boost infrastructure development and boost manufacturing

• It would also improve consumer service

• It will encourage responsive order taking and after sales service to customers and competitive pricing

• Increased access to buyers and sellers will also result

• MSMEs and artisans will be able to reach a wider audience in domestic and international settings

• This will also spur a better work culture and efficient customer service leading to reasonable transaction costs, lowered overhead and reduced labour and inventory costs

Against

• FDI in e-commerce works against the spirit of FDI policy in multi brand retail trading

• Allowing FDI in e-commerce will provide players complete geographical reach

• Indian markets are not ready for opening e-commerce space to foreign investors yet

• It will impair small time trading of conventional brick and mortar stores; Small time storekeepers will not be able to keep up with e-commerce players
• Concerning scale of economic operations, e-commerce players in inventory based model will have greater bargaining power as against standalone traders; the former will resort to predatory pricing

• Small time kirana stores create livelihood; closure of the same will lead to job loss

• At present, 100% FDI is allowed in only B2B e-commerce, not retail trading

• Indian e-commerce sector is at a very nascent stage and involving international players will harm the domestic industry

• Opening FDI in B2C e-commerce can also cause MNCs to dump cheaper products creating a negative impact in the manufacturing sector, especially the MSMEs

• Allowing entry of inventory based large foreign e-commerce players will shrink Indian entrepreneurship and harm the MSME sector

b>Facts and Stats

• Indian economy in terms of FDI inflows is experiencing growth

• By 2013, the market will reach USD 12.6 billion showing per annum growth of 34%

• Global business to consumer e-commerce sales will pass USD 1250 billion mark soon and total number of internet users will number around 3.5 billion

• According to a McKinsey report (2013), India is home to 137 million internet users with penetration of 11%. Total percentage of online buyers to internet users is 18%.

• China, Brazil, Sri Lanka and Pakistan have internet population of 538 (40%), 79 (40%), 3.2 (15%) and 29 (15 %) millions