To all those who haven't read up on the topic already, FDI stands for Foreign Direct Investment. It refers to a country allowing foreign companies to invest in certain fields or businesses in their country. The percentage of FDI refers to how much of an equity share the foreign company will be allowed to own in the outlets they set up which directly affects the decision making process of the company. So first things first, 51 percent FDI in retail does not mean that 51 percent of the retail industry in India will be run by foreign players. It simply means that Walmart can open a Walmart and have decisions taken by Walmart. Still paranoid? Read on.
Along with the 51 percent in retail, specifically multi brand retail (supermarkets), comes a set of laws which governs the investment. The first condition is that all these companies will have to make a minimum investment of 100 million dollars, something all of them seem very willing to do. Secondly, these companies can open malls only in cities with a minimum population of 10 lakh (about 53 key cities). In the present scenario, farmers sell their produce to a middleman (like a wholesaler) who then sells it to retailers like kirana stores at a much higher price. In turn, the retailer sells it to consumers at a higher price. While any supporter of FDI cannot promise that the elimination of the middleman (Walmart typically buys straight from the farmer) will lead to lower prices, it should definitely be noted that a reduction in the number of levels in this hierarchy leads to quicker buying and selling and might fetch farmers higher prices than they are able to charge as of now.
Another 'issue' that most opposition leaders have against FDI is the fact that a lot of middlemen and kirana store owners will lose their jobs. Their sudden love for these people is very touching, but it should be pointed out that one Walmart would be providing employment to the equivalent of 10 kirana stores based on very conservative estimates.
An issue that seems a little legitimate, however, is the question of monopoly. Walmart charges in, takes command and pushes everyone else out of business. Who is to say that the same Walmart that was paying the farmers extra will pay them miniscule amounts due to the lack of any other buyers? The Government tries to convince us that it will bail the farmers out of any such predicament, but very honestly, the Government is not known for keeping farmers particularly happy. Vidharba is enough proof of that. The Government still wants first pick of any material that farmers have to sell, but will a public sector supermarket be able to compete with Walmart, realistically? This is one legitimate argument which means that there are still kinks to work out before Manmohan Singh rolls out the reforms as though making up for 7 years of silence.
All in all, FDI seems like a pretty good idea, especially in the aviation sector where it has been set at 49 percent. Whether some foreign party will be interested in bailing out Kingfisher is very interesting. Whether Walmart can do what McDonalds managed to do about 20 years ago still remains to be seen. But for now, let FDI run it's course while making sure it has a leash. You never know how much havoc could be caused due to the lack of a plan.
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