People's Democracy

 FDI Threatens 3 Crore Indian Retail Traders

FOR the last four years, the Federation of Associations of Maharashtra (FAM) and similar associations in other states have been waging a campaign against the move on part of the government of India to permit foreign direct investment (FDI) in retail trade in the country. They have so far made several representations on this subject, copies of which were also forwarded to various members of parliament as well as to the offices of various political parties. It was primarily because of the support from several parliamentarians and political parties that the government of India was obliged to take a decision not to permit FDI in retail trade.

Notwithstanding all this, however, the government of India recently gave approvals to two international retail stores organisations, viz Metro GmbH of Germany and Shoprite Checkers of South Africa, to conduct “Cash and Carry Wholesale Trading” in the country. This was despite the fact that even in the year 2000 the FAM and other organisation had drawn attention to the fact that this “cash and carry wholesale” is merely a confusing phraseology coined by the international companies to conceal the real nature of their operations in retail trade. They had also pointed out that this is a crafty move on the part of foreign companies and that, once they set their shops in India, they would ultimately be conducting retail trading. Further, on the basis of detailed studies of the activities of these organisations in various countries, it was pointed out such multinational retailers, who are trying to conduct their operations under the fancy name of “Cash and Carry Wholesale” in India, resort to unfair trade practices such as predatory pricing, etc, in order to eliminate the local traders. They are in fact keen to establish a monopolistic situation where they can exploit the people at their will.

During the period October to December this year, the retailers organisations firmly expressed their opposition to the government’s approval given to the Metro GmbH to invest in Cash & Carry Wholesales Trading operation. They also voiced their serious concern that, in their considered view, this approval was nothing but to allow the Metro GmbH to enter the Indian retail market through the backdoor. 

Now, in accordance with the approval granted by the government of India, the Metro GmbH, the fourth biggest retailer in the world, has already started its “Cash and Carry Wholesale” operations at two places in the city of Bangalore --- at Yashwantpur and Kanakpura. In each of these suburbs of Bangalore, the Metro has started its stores in 1,10,000 square feet area. It has also issued over 2.50 lakh cards to its customers; these includes retailers, commercial organisations and organisations of professionals like doctors, lawyers, infotech company employees, architects, chartered accountants, etc. In some cases, these cards have been issued to employees of certain organisations even without explicit consent or knowledge of the concerned organisations.

Even during the very first month of the Metro GmbH’s operation, that is in October-November this year, concerned people have found conclusive proof showing that this company has started retail trading operations at its outlets. At the same time, the apprehensions regarding its methodology of adopting unfair trading practices like predatory pricing have also come true. It has started selling products below their purchase prices and the local retailers in Bangalore are greatly worried about this unfair trade practice which aims at first eliminating the local retailers from the market. This would only render the consumers defenceless and then the multinational retailers would be free to charge monopolistic prices from the consumers.

In this connection, the Metro has itself admitted that (1) once a customer is inside its store, she or he can purchase any of the 17,000 items sold by it, and (2) there is no minimum quantity that a customer is bound to purchase.

Further, the Metro claims that it has obtained clarification that it is allowed to carry on business to business sales, and also that it can sell even if a customer does not have a valid sales tax registration. This is a clear-cut circumvention of the government of India’s approval, For, any sale made to a consumer --- in a small quantity --- would by all standards be classified as retail sale, which is not permitted under the government of India’s licence.

An analysis of certain sales invoices of the Metro GmbH indicates the following: (1) The Metro’s customers are buying products not connected to their business (as mentioned in the S T registration), in fact for personal consumption and not for resale, and also (2) The Metro is selling even single units of any product and there is no minimum quantity required to be purchased by any customer.

It is evident that this is nothing but retail trade. But what is painfully surprising is that the bureaucrats in the ministry of commerce have not taken any action against such gross violations. In its stead, a clarification has been issued to the original approval, whereby the Metro can conveniently circumvent the earlier condition about not making any sale in retail. One may easily understand that this clarification is totally against the spirit of the government’s declared policy of FDI in retail trade.

Naturally, this has become a big issue in Bangalore and agitations by the local traders --- the traders affiliated to the Agricultural Produce Marketing Committee and to the retail traders association --- have started in a big way. This has put the government of Karnataka in a difficult situation.

It will be noted that when several representatives of the retail traders met the former commerce minister, (late) Murasoli Maran, they had repeatedly pointed out to the minister that this approval was likely to be openly misused by the Metro, once it entered the Indian retail market. Murasoli Maran had at that time categorically assured the traders in writing that, under the terms and conditions of the approval the Metro was granted, it was allowed to sell only to such retailers as have valid sales tax registration numbers and not to any consumers directly. The traders were also assured that appropriate action would be taken if the terms and conditions of approval were violated in any way.

Yet, nothing has been done by the government of India even though the retailers’ representatives have drawn the attention of the commerce ministry of the government of India towards the gross violence of the licence conditions by Metro GmbH and have represented the factual position to the authorities both by letters and by personal meetings. Up till now, the government of India has not initiated any corrective action against the said company despite concrete proofs having been submitted to it.

The issue directly concerns more than three crore retailers of the country.

In such a situation, the retailers are perfectly justified in apprehending that the bureaucracy in the commerce ministry is deliberately turning a Nelson’s eye towards these illegitimate activities of the Metro GmbH --- for reasons best known to them. The FAM has pointed all these facts in a letter it addressed to Arun Jaitley, minister of commerce, on November 12, 2003, drawing his kind attention to the serious developments in Bangalore and have requested him to take necessary action immediately. Corrective action on part of the ministry of commerce was yet to come by the end of November.

Needless to say, this poses a serious threat to the indigenous retail traders in the country. As their representatives have pointed out on various occasions, if the large foreign retail houses are allowed to conduct their activities in the country under whatever name and under whatever pretext, the retail trade in India, which is conducted largely as family businesses, would be seriously affected. Also, this will not only add to unemployment but will also affect the basic fabric of our society. Hence, the need is to appreciate that the activities conducted by the Metro GmbH at Bangalore are against our national interest and that the government has to ensure that the terms and conditions stipulated in the licence granted to the Metro are followed by it in letter and spirit. The gross violations the company is already indulging in, cannot be ignored.

A similar case is of the Shoprite Checkers of South Africa, which is the world’s number 1 retailer. This company too has obtained a similar approval for retail trade and is now in the process of starting its operations; it has already acquired over 60,000 square feet space in Nirmal Life Style Mall in Mulund, Mumbai. It is also said that, in order to overcome the policy hurdles, this company is busy creating fronts in the form of Indian franchisees, which would be nothing but the company’s puppets.

As for the retailers associations, they have already drawn the government of India’s attention to the dangers the permission granted to foreign retailers to do retail business in India would pose to the indigenous traders. For example, the Federation of Associations of Maharashtra (FAM), which represents over 750 trade associations in Maharashtra, has over the last four years taken up the issue of FDI in retail trade. This year too, it sent a letter to the union commerce ministry on March 7, and another on August 4, on this subject --- besides the one sent on November 12. But the government has failed to act in this regard.                                   

Therefore, the Indian retailers’ demand is that, as assured in writing by the former commerce minister, Murasoli Maran, the ministry must take immediate and decisive action to stop the multinational trading giants from indulging in retail trade in India and, it necessary, cancel or suspend their approval pending enquiry. They have also demanded that any such approval to any company must not be granted in future.