Role of FDI in Multi-brand Retail Trade in India and Its Implications

Based on a review of the procurement practices followed by the supermarket chains in both India and abroad to explore the implications of liberalization of FDI in retail on the different stakeholders in the agri-food system, this chapter concludes that new set of organizations and institutions brought in by the supermarket chains such as contracts and private standards often result in rationalization of suppliers, leading to the exclusion of small farmers in the modern supply chains. The small farmers with low level of human and physical capital managed to supply to these chains only when they work through collective organizations or preferred suppliers. The study further notes that the procurement practices of the Indian supermarket chains do not ensure benefits of transfer of technology as most of the procurement happens through collection centres without any formal contract and commitment to buy, and are initiated only to increase their market share. The liberalization of retail FDI will only accentuate the diffusion of supermarkets, bringing with it the effect of ‘Retail Darwinism’, which will reduce the employment in the retail sector. Moreover, the rapid diffusion of supermarket will lead to concentration of market power, and the lack of competition may lead to rise in consumer prices. According to the author, India does not have adequate institutions and effective governance in place to regulate and monitor the operations of the global retailers to ensure fair prices to the farmers. Moreover, there is no mechanism to ensure that the supermarkets procure from small and marginal farmers nor is there any institution to ensure that the farmers get fair prices without any delay. The study concludes that there should be greater level of preparedness in terms of producer institutions, regulations and well- tailored incentives for inclusiveness in the agri-food system.