FNB News - FICCI meet looks at implications of retail FDI on kirana stores, farmers

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FICCI meet looks at implications of retail FDI on kirana stores, farmers

Tuesday, 20 November, 2012, 08 : 00 AM [IST]

Our Bureau, Mumbai

In a bid to gauge the immediate concerns of the retail stakeholders – small kirana stores, farmers and consumers – and present to them the findings of researchers and think tanks on the impact of FDI (foreign direct investment) in retail, FICCI organised an interactive meeting in New Delhi recently.

The meeting was called at the behest of FICCI (Federation of Indian Chamber of Commerce & Industry) members, member bodies and trade and industry associations affiliated to the chamber from Chhattisgarh, Jharkhand, Karnataka, West Bengal and several other states, took stock of the concerns of all the retail players to present to the government a holistic view on this emotive issue. More of such interactive meetings are proposed to be held in other states.

Speaking at the meet, Prof. Srikant Gokhale, faculty, IIMA, highlighted the socio-economic implications of FDI in retailing. “Retail is local and will stay local. In the last 20 years of globalisation of retailing, foreign retailers have had less than 10 per cent market share in each of the big emerging economies, not being able to make a dent despite presence of more than 10 years. There are more stories of failure than success.”

He added, “Also, out of the top 250 retailers only 50 operate in more than 10 countries. Of these, 37 are in China and 18 out of them are already in India. Barring few, most of the retailers are facing tough situation in their home turf and hence are not interested. Therefore, it is not about foreign versus local but about organised versus unorganised battle.”

A presentation on FDI in retail and its implications on all stakeholders was made by Raghav Gupta, principal, Booz & Co. He pointed out that employment opportunities would be created in modern trade and added, “Today 800,000 people are employed directly by organised retail in India. Without FDI this number is expected to increase to two million by 2016 (another four million opportunities via indirect employment).”

He further said, “However, FDI in retail can potentially add another 1.5 million jobs by 2016 where additional direct employment will rise by 0.5 million and additional indirect employment will increase by one million. Less than 80 per cent of this employment opportunity will be for people with minimum qualifications. These jobs will offer higher salaries, defined career paths and better work environment compared to unorganised retail.”

For the first time the perception of the consumers was put forth during the interaction by Dr Arpita Mukherjee of Indian Council for Research and International Economic Relations (ICRIER). She revealed perceptions of consumers’ on FDI which have emerged from a survey. “India attracts foreign investors not because of its economic growth but due to the large number of consumers. In India, consumers are pessimistic about FDI in retail. People expect that with FDI, prices will come down, more range of products will be available and quality will improve. But so far it was seen that big brands do not offer a wide range of products and outlets in tier 2 and 3 cities and they often charge more for the same product and service in tier 2 and 3 cities than in a metro.”

R V Kanoria, president, FICCI, said, “Today’s meeting represents a genuine and wide member consultation on FDI in retail. The Indian retail is poised to become a 1.3 trillion dollar opportunity by 2020. With the current market size estimated at US$500 billion; this translates to an additional US$800 billion in the next eight years.”

India ranks top in the consumer confidence index. This shows that people have trust on the growth phenomenon of economy and the industry needs to stand firm on maintaining this confidence. Ninety four per cent of the Indian market is traditional retail and only 6% of the retail market is organised retail. India's retail market is expected to grow at 6-7 per cent over the next 10 years, reaching a size of approximately US$800 billion by 2020.

Traditional retail is expected to grow at 5 per cent and reach a size of US$650 billion (about 76 per cent), while organised retail is expected to grow at around 25 per cent and reach a size of US$200 billion by 2020. Hence, in all probabilities both organised and unorganised retail are here to see a boom.

India, however, will only be able to reap the benefits if it works on multi-fronts like infrastructure development, streamlining legislations, urban development and so on. FICCI has stood in favour of allowing up to 51% FDI in multi-brand retail and 100% in single-brand retail. The policy reform will have implications for various stakeholders like consumers, SMEs, and farmers and will also have implications on the infrastructure and employment status of the nation.

Kanoria stated that though FDI was permitted in cold-chain to the extent of 100%, in the absence of FDI in front-end retail, investment flows into this sector were insignificant. Huge investment of almost Rs 64,000 crore is required to build a strong backend infrastructure in India.

Thus FDI in retail would help in addressing this issue with compulsory investment of 50% in backend. Currently lack of adequate storage facilities cause heavy losses to farmers in terms of wastages in quality and quantity of produce in general, and of fruits and vegetables in particular. This also leads to high rate of inflation. As per some industry estimates, 35-40% of fruits and vegetables and nearly 10% of food grains in India are wasted annually. This leads to high rate of inflation too.