FDI in Retail: A short perspective on India from Dasgupta

Not strictly international law, but quite relevant and timely nevertheless: The Vale Columbia Center on Sustainable International Investment has published a short perspective titled “FDI in retail and inflation: The Case of India” by Nandita Dasgupta, a teacher at the University of Maryland – Baltimore County and a visiting professor at Johns Hopkins. Dasgupta identifies several factors that “unfavorably affect agricultural supply, create a supply-demand gap and help raise food prices.” The piece then lists out the main features of the Government of India’s proposed FDI in retail policy, and notes the main concerns against it:

Despite the regulatory provisions to ensure domestic competition and protect the domestic retail industry and farmers, the policy has received stiff opposition. Concerns include the possibility of monopoly power of foreign entrants over both farmers and consumers, predatory pricing strategies of the entrants, manipulation of prices for the entrants’ own benefit and a fall in income, employment and the eventual destruction of the unorganized indigenous retail sector dominated by small family-run outlets.

The short piece then goes on to mention the experience of other economies:

But it is important to remember that other countries like Argentina, Brazil, Chile, China, Indonesia, Malaysia, Russia, Singapore, and Thailand have allowed 100% FDI in multi-brand retail since the 1990s and many of them have had encouraging experiences. 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. Employment in the retail and wholesale sectors increased from 28 million to 54 million from 1992 to 2001.

In conclusion, the author notes:

Favorable 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. It will transform the way perishable agricultural produce is acquired, stored, preserved, and marketed — and thus help control India’s persistent food inflation.

On another note, I would also like to add that the FDI policy, and the objections to it, raise issues of international investment law, as well. I will try and come back to them at some point.

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