Food Bazaar, Reliance Fresh and commodity futures trading are sign-posts on the basis of which the story on FDI in multi-brand retail trading should be built. The issue is not really about how much FDI should be permitted or what the clauses that have to be adhered to should be, but whether or not we are prepared to write the script.
The Food Bazaar experience is a very good example of how organised retail can make a difference. This model has brought goods at the best possible price to the customer and also added the backward linkages that are required in the supply chain to deliver a superior product.
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Getting FDI into this sector will certainly mean a sea change in the way food is retailed, as it would bring in these backward linkages as part of the business model.
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The problem is in our mindset. This is where the stories of Reliance Fresh and the chequered history of futures trading come in. Reliance has been through choppy waters to expand its reach as there is opposition to organised retailing in some states. Any organised form of retailing will affect the ‘mom-and-pop stores’, which cannot compete with the price advantage of organised retailers. There will be displacement of this gentry wherever there is organised retail—Indian or foreign. This fact is inescapable once a market solution, i.e., organised retailing (or FDI in retail at a broader level) is introduced.
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Now, if one looks at futures trading in farm products, it is an example of how an important part of the derivative market has been stifled with a series of bans being imposed when futures trading were linked with inflation. The problem is really that the primary markets (mandis) are not integrated and futures trading came before mandi reforms, consequently creating a schism.
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This is where policy comes in. Are we prepared to have FDI in a sector that will help the consumer but ruffle other constituencies along the way to the extent that the issue becomes politically and socially sensitive? One may recollect that when futures trading was banned in pulses, cereals and sugar, the motivating factor was less economic and more appeasement.
FDI in retail certainly makes eminent sense and has to be pursued in order to provide quality goods to the consumer while simultaneously building infrastructure.
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