FDI In Retail Sector, The New Tamasha in town
India must be only country in the world where Political Right upholds Communist economics. Thought Right wing parties believed in free market? Sagarika Ghose on twitter
FDI In multi brand Retailing
We always need something to make our parliament the most unproductive working space on earth. FDI in retail is the latest excuse our lawmakers needed to skip work. It is surprising to note, the parties which were advocating FDI in retail during their tenure as government now seems to have a change of heart.
What we want now as citizens is a formal debate, not in the paid coffers of tabloids that are called news channels but where it really matters…In the parliament. Alas that is how traditional democracies work and India does not take pride in being traditional. We believe in slapping the ministers or going on hunger strikes but not in demanding a cultured debate in the parliament on an important decisions that govt has taken in recent years.
Like all Change, most of us are skeptical and some people like me in Retail industry have been eagerly waiting for this to happen, but neither of us have any clue on what the implications it would be have on the economy and society general.
I vaguely remember in the 1990’s when India was opening up its economy by an oft forgotten maverick prime minister and an extremely capable finance minister, there was the same kind of skeptic feeling. The doomsday predictions for the Indian entrepreneur. But twenty years ahead we agree almost unanimously, that it was the best thing that happened to Indian industry. While I feel sorry, for my then favorite Campa Cola it makes me realise that it was a small sacrifice. We traded it for a Jaguar and Range rover. We also traded it for a steady 8% growth in the Indian economy over the last 2 decades and for an international outlook that India would be one of the countries that will bring the world out the current mess it got in to. We also traded campa cola for meteoric raise in the middle class income levels, a world class IT and telecom infrastructure and a putting India into an acronym called BRIC which is generally seen as the future of economic growth in the world. It is a small sacrifice.
FDI Retailing and its effects
FDI will also make the same kind of sacrifices. It will bring the end of the great Indian middle man. Indian Retail is a complex business.There are so many layers of supply chain before the produce reach the retail floor and so many commissions that are exchanged in between that the actual producer… read farmer, is happy just to get his costs back and some of his produce for his consumption. For a country that is being counted as the next global economic leader, we have miserable infrastructure in the name of supply chain. We have tons of grain lost to mishandling and mismanagement every year. We loose a lot of perishable goods before it reached the retail floor.
If we expect that this infrastructure will be built by the govt we still live in fools paradise. But an organisation with a profit motive will ensure the supply chain is efficient and productive. this in turn will create new jobs, new businesses, new entrepreneurs. that is how economies grow.
Would Indian small business be affected by FDI in retail
The biggest debate is FDI will kill the business of the local kirana stores. It will be the end of the sabjiwala at the corner of the street. There are few things against these arguments.
1. The super stores that will not come up next to a B block of Amar colony in Lajpat Nagar. These are super stores which require 30000-40000 Sqft. of retail space even for their smallest stores. so they are going to be destination stores in places where the real estate is cheaper. Since you would not be taking your car for a 5 km drive in our traffic (also with the cost of gas) to buy eggs and bread for breakfast, kirana stores will co-exist. Their assortment may change over time but they will profitably co-exist.
2. There will be a metamorphosis of the existing retail space. The Kirana stores will morph into more organized retail stores. The new investment into infrastructure in supply chain will assist this transformation. These store will be more retail efficient and more profitable.
3. The entrepreneurs who run these kirana stores have always been astute entrepreneurs. They have an amazing ability to acclimate to the business environment. That is why that sector has been operating successfully for ages. So they will as I said before morph and trade and trade profitably
But saying that, I also agree that there will be a massacre. All inefficient retail space will be wiped out. Middle men who add no value to the supply chain will be wiped out. But this is expected of a free economy. The market dictates and then it is the survival of the fittest.
We have always under estimated the Indian Entrepreneur. The license raj and closed economy era of the yesteryears has been designed to protect them. But we already have a precedence that once out of these shackles og government control the Indian entrepreneur has always done well in the global competition.
The Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian economy at one point of time or the other would be embraced by liberalization, privatization and globalization. FDI in multi-brand retailing is in that sense a steady progression of that trajectory. The Govt has by far protected the domestic industry from the adverse effects of a change that both logical and essential.
The proposed change will require a more informed and inclusive support from the political parties and the Industry. One hopes that the government would stand up to its responsibility, because what is at stake is the stability of the vital pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio economic equilibrium of the entire country. As this political space develops in the coming weeks lets sit back and watch the tamasha in our parliament
“It is a win-win situation for everyone. With the amount of money to be invested in back-end, supply chain and farm sector will benefit,” Future Group Chief Executive Officer Kishore Biyani told PTI.
Even the small and medium enterprises will benefit. Eventually consumers will get a lot of choices and they will get products at better prices, he added.
Shoppers Stop Vice Chairman BS Nagesh said: “I welcome FDI in retail. Capital is required for the market whether it comes from domestic or foreign investors, it will help grow the sector in the next 3-5 years.”
Commenting on the impact of opening the sector to foreign players he said: “There will be no impact on the domestic industry as there is enough market. At the end of the day the consumer will benefit.”
This is an article by Nandan Nelkeni couple of years back on FDI. Cant find the source URL but i had a clipped copy, so i pasted it here for those who wants to read the views of someone from outside the industry.
For a more humorous take on FDI have a look at a curation of popular cartoons on the net related to FDI, in this post. FDI CARTOONS