CII welcomes the Government’s decision to allow 51 per cent FDI in multi brand retail
The Confederation of Indian Industry (CII) welcomes the Government’s decision to allow 51 per cent FDI in multi brand retail and 100 per cent in single brand formats in India. CII is of the view that FDI in retail will greatly boost organized retail in India and drive inclusive growth.
According to Mr Chandrajit Banerjee, Director General, CII, the biggest beneficiary of FDI in retail would be small farmers, who will be able to improve productivity and realize higher remuneration by selling directly to large organized players and thereby shorten the chain from farm to consumers.
According to a retail report authored by Boston Consulting Group, India, (BCG) and CII, ‘Building a New India’, the current size of organized retail in the country stands at close to US$ 28 billion or 6–7 percent of total retail. The total retail market is estimated to grow to US$ 1,250 billion by 2020, of which 21 % would be organized. With added capital investments from key overseas players, the sector would have the potential to significantly impact the Indian economy.
As per the study, farmers in India today receive a relatively small share of the end consumer price. As an example for tomatoes, farmers in India earn only 30 percent of consumer price while in more developed markets, this is in the 50–70 percent range.
The study further says that organized retail has the potential to drive efficiencies in the supply chain by (a) increasing price realization for farmers by 10–30 percent through sourcing directly or closer to the farm (b) reducing handling and wastage by 25–50 percent through consolidation as well as investments in technology, either directly or through aggregators and (c) upgrading the farmer’s capabilities by providing know–how and capital.
CII believes that opening the retail sector to foreign investors can be a game changer for the Indian economy. It will enable the sector to realize its true potential of US$ 260 billion by 2020 and shift the benefits to smaller towns and cities. Large sub–sectors like food and grocery, which have been lagging, would see greater penetration. Profitability of players would be stable and global majors would be playing a greater role through strategic investments and transfer of know–how.
The beneficiaries of this move would include all stakeholders in the retail value chain – producers, consumers and employees. The study estimates aggregate increase in income of US$ 35–45 billion per year for all producers combined; 3–4 million new direct jobs and around 4–6 million new indirect jobs in the logistics sector, contract labour in the distribution and repackaging centers, housekeeping, and security staff in the stores. From the consumers’ point of view, savings can total 5–10 percent of spending in specific categories, leading to an aggregate savings of US$ 25–30 billion. This translates to almost 0.5 percent of GDP per year.
The Government too stands to gain by this move through more transparent and accountable monitoring of goods and supply chain management systems. The government can be expected to receive an additional income of US$ 25–30 billion by way of a variety of taxes. All in all, FDI will definitely help the government in facilitating the inclusive growth agenda.