The Government of India recently allowed 51% Foreign Investments in Multi-Brand Retail after 15 years of opening the Sector to Foreign Investments.
The Congress Politicians heading the Government claims that FDI in Multi-brand Retail Trade [MBRT] will create “millions of jobs” need to be assessed in the context of a) broader trends in employment across sectors during high inflow of FDI and b) relevant experiences across retailing. On both counts, unqualified claims of job creation from FDI in retail seem over-optimistic.
In India, 33-60% of the traditional fruit and vegetable retailers reported a 15-30% decline in footfalls, 10-30% decline in sales and 20-30% decline in incomes across the cities of Bangalore, Ahmadabad and Chandigarh, the largest impact being in Bangalore, which is one of the most supermarket penetrated cities in India [Reference – Singh, S and N Singla (2011): Fresh Food Retail Chains in India: Organization and Impacts (Allied). Comparing with other economies, the spread of supermarkets led to a 14% reduction in the share of “mom and pop” stores in Thailand within four years of FDI permission [Reference – Stichele, M V, Sanne van der Wal and J Oldenzeil (2006): Who Reaps the Fruit? Critical Issues in the Fresh Fruit and Vegetable Chain (Center for Research in Multinational Corporations)]
NSS data also indicate that employment growth during H1 2000s was more broad based across agriculture, services, manufacturing and construction [Reference – Report of the Working Group on employment, planning & policy for the 12th five year plan (2012-17)]. During H2 2000s incremental employment came from construction sector, especially from
rural areas in states like UP, Rajasthan and Tamil Nadu. While decline in employment in agri sector can be seen as a positive, the shift to temporary and casual jobs in construction sector reflect poor quality of job creation, which may fail to sustain.
Overall, there is little evidence to suggest FDI flows have enabled substantial employment externalities. Large FDI flows, specially post FY07, has accompanied moderation in fixed investments. Hence, while declining employment elasticity and slowing employment is concerning, FDI which only forms about 5-6% of total domestic investments, may not be a significant contributor to employment generation or an alternative to the need to stimulate domestic savings and investments.