The opening up of the retail sector to FDI has generated a lot of interest and debate in the media and among people who meet over drinks or dinner. Without trying to get into the societal impact or the economic benefits as measured through GDP or per capita income, I would like to present some thoughts that have crossed my mind.
Welcoming FDI in retail as a bold step initiated under the able and dynamic leadership of the PM, the media is comparing this to the economic liberalisation of 1991. As far as I understood the liberalisation of 1991, much of it had to do with opening up of the economy to Indian players and removing the licensing system that was in vogue.
I was part of a survey that was taken up by National Productivity Council about one year prior to the reforms of 1991 at the behest of the Government of India. We visited a sample of industries in various sectors and i remember visiting Madras Fertilizers Ltd., Tamil Nadu Newsprint and Papers Ltd, near Karur, a plywood manufacturing unit in Kerala, a pharma company in Bangalore, and other such units. Like me there were almost 10 other consultants who were part of the survey in other parts of India. Almost all executives dealing with government for such mundane requirements as importing spares for machinery, had to wade through multiple agencies in the GoI before getting the necessary clearances. Importing of manufacturing equipment was a big hassle, and in the absence of many manufacturers of equipment in India, it was a herculean task to expand the capacity, even if demand was there. Under this scenario, it was no surprise that the reform, which ushered in a slew of changes in the permit raj and licensing goondaism that prevailed till then, was welcomed with open arms by the local manufacturers. Many sectors which were till then restricted to small players were opened up - among them were the garment and footwear sector - and we saw an explosive growth in these two industry segments subsequently. Moreover, these two industries are labour intensive and are not very amenable to automation and robotics.
Expansion of such sectors invariably brings in an increase of jobs and production of goods within the country sets up the stage for providing indirect employment to many in the downstream and upstream areas as well as the various service sectors to support manufacturing. One additional job in manufacturing may generate about 10 jobs overall. This is my assumption and I am open to listen to contrary views. On the contrary, creation of jobs in retail sector, which is what is being touted as one of the benefits of opening up of FDI in retail, will at best create 2 additional jobs in logistics. RETAIL SECTOR BEING THE LAST LINK IN THE SUPPLY CHAIN FROM FACTORY TO CONSUMER, I have my own doubts of the employment generation capabilities in this sector. Where the trading activity is more pronounced in an economy, like the Gulf countries, starting of Walmart or Tesco may bring in employment opportunities. In India, I feel it should not have been brought in unless other sectors had improved - primarily education, agriculture, natural resources, and health care.
Welcoming FDI in retail as a bold step initiated under the able and dynamic leadership of the PM, the media is comparing this to the economic liberalisation of 1991. As far as I understood the liberalisation of 1991, much of it had to do with opening up of the economy to Indian players and removing the licensing system that was in vogue.
I was part of a survey that was taken up by National Productivity Council about one year prior to the reforms of 1991 at the behest of the Government of India. We visited a sample of industries in various sectors and i remember visiting Madras Fertilizers Ltd., Tamil Nadu Newsprint and Papers Ltd, near Karur, a plywood manufacturing unit in Kerala, a pharma company in Bangalore, and other such units. Like me there were almost 10 other consultants who were part of the survey in other parts of India. Almost all executives dealing with government for such mundane requirements as importing spares for machinery, had to wade through multiple agencies in the GoI before getting the necessary clearances. Importing of manufacturing equipment was a big hassle, and in the absence of many manufacturers of equipment in India, it was a herculean task to expand the capacity, even if demand was there. Under this scenario, it was no surprise that the reform, which ushered in a slew of changes in the permit raj and licensing goondaism that prevailed till then, was welcomed with open arms by the local manufacturers. Many sectors which were till then restricted to small players were opened up - among them were the garment and footwear sector - and we saw an explosive growth in these two industry segments subsequently. Moreover, these two industries are labour intensive and are not very amenable to automation and robotics.
Expansion of such sectors invariably brings in an increase of jobs and production of goods within the country sets up the stage for providing indirect employment to many in the downstream and upstream areas as well as the various service sectors to support manufacturing. One additional job in manufacturing may generate about 10 jobs overall. This is my assumption and I am open to listen to contrary views. On the contrary, creation of jobs in retail sector, which is what is being touted as one of the benefits of opening up of FDI in retail, will at best create 2 additional jobs in logistics. RETAIL SECTOR BEING THE LAST LINK IN THE SUPPLY CHAIN FROM FACTORY TO CONSUMER, I have my own doubts of the employment generation capabilities in this sector. Where the trading activity is more pronounced in an economy, like the Gulf countries, starting of Walmart or Tesco may bring in employment opportunities. In India, I feel it should not have been brought in unless other sectors had improved - primarily education, agriculture, natural resources, and health care.
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