Coming out strongly in defence of foreign direct investment in retail, the ministry of commerce and industry has told the Prime Minister's Office that there is no empirical evidence to suggest that organised retail would adversely impact small retailers.
This is in response to a directive from the PMO earlier this month asking the department of industrial policy and promotion in the ministry to study the impact of large-scale retail operations by "transnational supermarkets" or major Indian business houses on small retailers and vendors.
According to the ministry, the level of threat to small retailers from an international retailer is the same as from a large domestic organised retailer and the question boils down to small against the big and not foreign versus local.
The issue was first raised by Congress President Sonia Gandhi in a letter to Prime Minister Manmohan Singh after the Bharti group had announced its tie-up with Wal-Mart for a retail venture.
In its note, the ministry has said that small retailers have three key advantages over large retailers, including those with FDI: One, they are more competitive because of low overheads and local market knowledge; two, they are engaged in services like home delivery and sales on credit which is not possible by big retailers; and three, they are conveniently located for consumers who do not incur any transportation cost.
It also argues that FDI in retail trade would at best penetrate into metros and other big cities, while small town and rural counters as well as street vendors will remain largely unaffected. Also, organised retail requires large space, which is available only outside congested locations.
Competition, the note says, is bound to increase and government policy cannot be tailored to protect. Instead, it should ensure that this sector is supported in every possible way so that it can face competition and integrate globally.
The note from the ministry says that domestically produced goods would continue to dominate retail sales even after foreign retailers come in.
Allaying fears of losses in jobs, the ministry has quoted an UNCTAD report saying any job loss in the informal economy would be more than compensated by employment generated by large retailers who will attract stalls, convenience stores and other facilities in the neighbourhood.
