The Government of India has finally liberalized the retail sector by allowing FDI to flow in to it, and at least 8 states out of the 28 states in the country–fortunately the 8 that account for over 50% of India’s economic output– seem to be aligned behind this decision. Tragically, it is laggard states like West Bengal and Bihar that have not accepted this new initiative, potentially setting up these states to fall further behind economically.
The lack of support for opening up of the Indian market to FDI in modern retail by 20 of India’s 28 states is frankly bemusing to me. Certainly, in the food sector, particularly fresh produce, the lack of organized, modern retail in India is responsible for higher prices for food products faced by the end consumer as well as lower prices received by the producers. The high price to end consumers is not only because the handful of middle-men manipulate prices, as was claimed in the Indian media, earlier this year, when prices of fresh produce spiraled dramatically upwards, but also because a large percentage of fresh produce is spoilt in transit due to poor packaging and the lack of refrigerated transport. These are problems that the entry of large modern retail is also likely to fix. Indeed a recent article in the Financial times noted that Carrefour, which is in India and currently sells to businesses, requiring a minimum per trip spend of Rs. 1000 (approx. US$19), offers prices that are lower by 5-50% depending on the category.
Importantly, modern retailers are also likely to create jobs and, do so, without necessarily driving out the smaller retailers. Smaller retailers are likely to co-exist, as they provide and will likely continue to provide a myriad of benefits such as proximity, locally adapted product mix, credit, and the like. Thus, I for one am pleased to see that the Government has taken the step to liberalize this sector.