This essay is in response to the article titled "FDI in Retail" written by R Ramasubramanian and published earlier on the website. First, any argument against allowing foreign direct investment (FDI) in retail needs to consider the following facts. Large retail chains like Big Bazaar, Giants, Shoprite, Star, Lifestyle, Pantaloon, Piramyds, Shoppers Stop, Trent etc. already exist and are readying to scale up their operations. Reliance Industries recently announced its plan to enter into the retail business with an investment of Rs 3,375 crores (US$750 million). Foreign investment in retail will not compete with the mom-and-pop type of kirana stores. Its chains in large cities and towns will compete with Indian retail chains. Preventing foreign investment in this sector will only protect Indian corporate houses.

Secondly, labour standards in India not being ideal is a problem, but the same are applicable to Indian companies as well. Disallowing FDI in the retail sector will not help improve labour standards. On the contrary, it is much easier to monitor labour laws in the formal retail sector. It is not clear how the displacement figures for labour have been arrived at in this article. It acknowledges that the retail sector is set to grow at a scorching pace. Therefore, employment in this sector should also grow, and the younger demographic group that is suffering from high unemployment would benefit; especially the educated unemployed, in particular high school graduates and lesser-skilled sections of the work force. Ironically this will precisely target the lakhs registered in the employment exchanges. Since the article agrees that the Chinese case is comparable with India's, it is pertinent to note that employment in their retail sector has grown steadily from 1992, when foreign investment was first allowed. It currently accounts for around seven per cent of their labour force.

Thirdly, as regards "crowding out" domestic investment, the problem is not the lack of investment opportunities. It is quite the opposite - lack of investible funds. The argument that India's retail sector has "low capital and infrastructure needs" is questionable. Today, India sorely lacks supply and distribution infrastructure. The wholesale system suffers from under-investment, leading to 20-40 per cent wastage. The requirement of cold storage facilities is well known. Allowing FDI in retail will enable India to attract higher investment in this area.

Fourthly, the article has argued against allowing MNCs into India's retail sector. But many Indian companies are MNCs now: would that mean that, say, the Tatas should be excluded from the retail sector? If not, is this argument against only foreign MNCs? If the question is regarding size and abuse of market power, then the answer is to have a functioning Competition Commission. Allowing foreign investment will enhance competition: keeping it out will be anti-competitive.

The article enumerates some benefits expected to flow from FDI in retail: Development of supply chains, development of storage and warehousing, and access to expertise and technology. To these can be added: Providing competition to the Indian retail chains - the benefits will flow to both producers and consumers in India, while providing employment. Also, to the extent that the formal retail sector (Indian or foreign) will replace the traditional retail outlets, there will be greater enforcement of taxation norms, reduced tax evasion and better labour monitoring. Walmart entered the Chinese market in 1996; as of 2004, it had employed more than 20,000 people and paid total taxes of over US$ 111 million. Its sourcing of Chinese products also increased manifold.

The article argues that India does not have the necessary legislative or regulatory framework or experience to deal with problems associated with FDI. This is not true. The FIPB and the RBI are the authorities that foreign investors have to satisfy, apart from meeting the obligations applicable to domestic investors. The Indian experience with FDI has been overwhelmingly positive. The highest inflows of FDI during 1991-2004 have been for the data-processing software and consultancy services; pharmaceuticals and automobile industries. These are the most vibrant and fastest growing sectors of the economy today, employing large numbers of people. Introduction of foreign competition has prompted Indian companies to enhance productivity. They have not been driven out of business, but, on the contrary, have become globally competitive enterprises. Consumers have benefited from lower prices, better quality, and a wider selection of products and services. Thus, it is not clear how keeping foreign investment out of retail will help the government in providing economic security to its people. On the contrary there are several advantages to be gained from allowing FDI in retail.