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What happened:
Government has decided to allow 51% FDI in Multi-brand retails.
What are the pre-conditions:

  • Minimum investment of $100 million.
  • 50% of the investment is to be in backend infrastructure development.
  • 30% of all raw material has be procured from India's small and medium industries.
  • Permission to set up malls only in cities with a minimum population of 10 lakh.
  • Government has the first right to procure material from the farmers.
  • Products should be sold under the same brand internationally.
  • Foreign investor should be the owner of the brand.
Present Condition:
  • Farmers get only 10 to 15% of the price we pay.
  • 3-4 middlemen in between farmers and customers.
  • Huge post produce losses for farmers due to inadequate facilities.
  • A poorly managed food supply infrastructure.
Why do we need it:
  • We are the second highest producer of fruits and vegetables in the world but still we are not able to utilise is properly because of inadequate infrastructure facilities.
  • It will reduce pre-harvest wastage/losses and thus help control food inflation.
  • It will create 1.5 million more jobs in 5 years. Apart from the huge number of indirect employment.
  • It will increase competition which is always beneficial for the customer.
  • It will remove the middleman from the equation. It will reduce costs which in turn will reduce prices.
What about the problems:
There will be no problems.
We already have local players like Reliance Fresh and Big Bazaar. They have done wonderfully well. Local traders are still trading as they were. Why not allow foreign players? They will bring with them human/monetary/knowledge capital which are very important for a developing country like India. Just bringing proper storage places will go a long way in solving the wastage problem.
China, Brazil, Argentina, Singapore, Chile, Thailand, Russia and Indonesia all allow 100% and their economies have benefited from this move. India is only allowing 51% and that too with a lot of checks.
We don't have to worry about monopoly because the Competition Commission of India can handle all anti competitive practices including predatory pricing.
In India, cities with population of more than 10 lakh are just 53 in number. This means that any negative impact will not have huge repercussions. Kirana store walas in majority of other cities cities will be totally unaffected. It's a small but steady step on the path of liberalization.
It will decrease unorganized labour sector and bring them all under organised labour. This will it will be easier to enforce labour laws and also check its implementation. A lot of jobs will be created. Ofcourse a few will be lost as well but that number will not be very high. There will be a reorganization of the job structure rather than a reduction.
It is true that the government can also provide all the infrastructure facilities that the companies will provide but  true governance means less government role and more freedom to the society. Why should it be a problem if companies improve infrastructure facilities in return of a gain?
Thus we can see that the FDI rule is for the greater good of the society. Oppose it at your own risk.
This post first appeared here on my personal blog.
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