Can FDI help 'kirana' stores?

There is considerable opposition in the country on the issue of Foreign Direct Investment (FDI) in retail.

A lot of political parties genuinely believe that FDI will mean larger scale and lower prices and therefore, demise of neighbourhood retail stores.

If we don’t take any other step in terms of triggering new innovations in consumer education, responsible retailing, reducing ecological footprint and improving both consumer and retailer welfare, then the fears may actually come true.

As experience in telecom sector and several other sectors has shown, FDI can improve the available amount for experimentation and innovation and thereby, stimulate larger social welfare.

It’s true that transition does cause problem. Without getting into the merit, less or more FDI will mean better or poorer choices for consumers and the producers.

Let’s first discuss what kind of innovation one could generate to ensure that consumers get better products with environmental and social concerns embedded in the delivery. How could producers get more opportunities for innovations?

The kind of infrastructure one would need to service the future retailing system will not be possible without much greater participation of citizens in regulating their own behaviour but also regulating the public investments with much more critical eye, demanding much higher transparency than at present.

The Indian consumer is a very discerning one and can leverage Nirma products in comparison with comparative ones by multinationals. It can sustain a local restaurant in contrast to McDonalds and KFC and it can expand market for Nano and Maruti Suzuki, vis-à-vis other automobiles with much higher foreign component.

To believe that such a discerning consumer can be hoodwinked by the lure of large corporations merely because of their brand name is a great injustice to the wisdom of Indian masses.

The telecom revolution would have been impossible without FDI and who would argue that the innovation that Indian telecom industry brought about in expanding the reach would not have taught a few lessons to principal partners and investors.

It is true, however, that Indian language content and information on health, farming, education and folk culture in local languages is still very deficient but we cannot put the blame only on the shoulders of investors.

The regulators like TRAI having thousands of crores of cess funds have not used it for promoting innovations and entrepreneurship to provide these services in tribal and economically depressed regions.

Likewise in retail, we must create an inclusive innovation fund for retail through the contributions from the beneficiaries of FDI for creating markets for the products made by the poor. It could be pickles, crafts, handloom or food products or whole range of other goods that can be manufactured by small-scale entrepreneurs and village communities.

All the companies receiving FDI in collaboration with packaging and supply chain management industry should create institutional networks for building community brands and community based product development facilities. It will increase percolation of benefits to the producers and at the same time, help consumers diversify their tastes and patronise decentralised production.

There is no reason that large-scale retail should only promote large-scale manufacturing. Every retail store should provide avenues for decentralised procurement from the hinterlands.

Imagine if different communities specialise in different kinds of sprouts and if sprout bars spring up all over the country with variety of combinations, dressings, and shelf life, won’t nutritional profile of the country change drastically? How many sprouts bars do we have today?

The author is a professor at IIMA anilgb@gmail.com