FDI in retail to help control inflation: Columbia paper

Washington, Dec 6: Even as the decision on FDI in retail was put on hold by the Indian government, a study released by the prestigious Columbia University has claimed that this will help contain inflation and transform the way perishable items in agricultural sector is acquired.

"It (FDI in retail sector) will transform the way perishable agricultural produce is acquired, stored, preserved, and marketed -- and thus help control India''s persistent food inflation," Nandita Dasgupta, who teaches economics at the University of Maryland, wrote in Columbia FDI Perspective, released on Monday.

"Favourable experiences of other emerging markets suggest that the appropriate implementation of FDI in multi-brand food retailing, with effective checks designed to protect indigenous small and medium-size enterprises, will eventually alleviate the supply-side impediments to agricultural production," the author said.

Dasgupta argues that if effectively implemented, FDI in retail sector has the potential to bring in foreign capital, technology and managerial expertise of big international retailers; and develop an efficient linkage between the back-end supply chain and the front-end via capital investment and technological inputs.

In an apparent response to those who claim that FDI in multi-brand retailing would kill the small scale sector and badly affect the agricultural sector, Dasgupta argues that the experiences of some of the other developing countries indicate to the other direction.

"It is important to remember that other countries like Argentina, Brazil, Chile, China, Indonesia, Malaysia, Russia, Singapore, and Thailand have allowed 100 per cent FDI in multi-brand retail since the 90s and many of them have had encouraging experiences," she said.

China, for one, permitted FDI in retail as early as 1992.

It has since attracted huge investments in the retail sector without affecting either small retailers or domestic retail chains.
Since 2004, the number of small outlets rose from 1.9 million to over 2.5 million in China, she claimed.

"Employment in the retail and wholesale sectors increased from 28 million to 54 million from 1992 to 2001. In Indonesia, even after ten years of opening FDI in multi-brand retail, 90 per cent of the business remains with small traders," the Indian American economist argues in her paper ''FDI in retailing and inflation: The case of India''.

After coming under attack by the Opposition, which paralysed the Indian Parliament for nearly two weeks, Congress led UPA government on Monday said that final decision on the FDI issue will be taken only after consulting all stakeholders.

PTI