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Retailers not enthusiastic about FDI
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Monday, 17 May, 2010, 08 : 00 AM [IST]
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Our Bureau, Mumbai
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The Government of India is mulling over allowing 51% FDI in multi brand retail. The current policy allows 51 % FDI in single-brand retail only.
According to the Department of Industrial Policy and Promotion (DIPP), foreign direct investment (FDI) inflows as on September 2009, in single-brand retail trading, stood at approximately $47.43 million, . Given that India's retail market is the fifth largest retail destination globally, it continues to be among the most attractive for global retailers.
Opening up of the retail sector is, however, not an easy game-play for the government. The industry is giving a mixed reaction to the proposal. While a lobby of retailers are appreciating the platform that would be provided to the foreign entry in the Indian business arena, the other section of retailers, which remarkably is huge in width, feels that Indian retailers would be left as mere puppets with their strings controlled by foreign management who would have an additional share of 2% compared to their Indian partners. Besides the already threatened existence of traditional retailers would be further challenged.
Says Chandrakant Sanghvi, chairman of foreign trade committee, Federation of Associations of Maharashtra, “We have been fighting against the FDI entry in retail for the last 10 years. It’s not required because the profit made by these MNCs will be transferred to their own country, second a large number of retailers in India would be displaced. The government must know that countries like the US, UK and Canada had to pay huge cost of allowing the entry of MNCs in their markets. In the US especially in the year 1960, retail was dominated by street corner retailers who constituted 95% of the industry, but with retails like Wal-Mart and others coming in almost 70-80% business of small retail businesses were taken over. Similar scenario is impending for Indian retail.”
Sanghvi opined that the free market lobby in parliament is overlooking the disadvantages of allowing FDI or MNCs in retail which are not convenient for India's economy.
To second Sanghvi's opinion is Dharmendra Kumar, the director of India FDI Watch. Kumar says, “We already have FDI in single brand retail and wholesale cash and carry. Before further liberalisation of the retail sector, the government. must come forth with a national policy on retail trade having the confidence of stake holders to ensure life chances to all by fair distribution of urban commercial spaces and adequately allocate space for social consumption and develop natural markets. Our retail structure should not be controlled by a handful of multinational corporations in association with Indian corporate partners. The government. must protect livelihood of retailers and vendors, ensure better prices to farmers, provide quality products at reasonable prices to consumers, protect ecology, communities and ensure decent work condition with living wages to workers.”
Both Sanghvi and Kumar are of the opinion that FDI would wash away the 1.25 crore small stores in the country and the 15-20 crore people directly or indirectly depended on them would be deprived of livelihood. The proposal is also unfair to a large section of Indian population which resides in villages. The MNCs or the organised retail corporations are not able to cover this population because of reasons like poor infrastructure, operational difficulties, remoteness of markets and the sheer size of the Indian market. For the affluent class too, organised retail markets are more a place of family hangout for exotic buying and the regular shopping is strictly depended on the nearby kiranas.
It is also apparent that it takes a lot of time and money for an organised retailer to show decent profits in Indian market conditions. This is probably the reason that some of the big names in the organised retail are comfortable with the idea of foreign money coming in India, feels Kumar Rajagopalan, CEO, Retailer's Association of India. He says, “FDI coming in is a welcome step as it would bring in players who understand the retail business and also the funds and technical know-how to the sector.” RAI has been demanding FDI in multi-brand retail during the last two years.
Dharmendra says, “The operations of supply chain need huge investment. The corporations who were earleir averse to the idea of FDI entry are now mum on the issue because the recession proved to be a learning session for them. Many big corporations had to bear huge losses and few like Subhiksha had to also pull down the shutter. So foreign funds, though managed by outsiders, can help sort out the issue of funds and infrastructure.”
There is a third version on the FDI issue. People who are neutral over FDI entry opine that the market must be made ready for FDI but over a period of time. Says Prabodh Halde, secretary, AFSTI Mumbai chapter, “ India is not prepared for this kind of competition. Other Asian countries like Malaysia opened FDI gradually and did not open completely, India should follow suit. Such a measure already proved to be working for the fuel and natural gas sectors.” Nevertheless, Halde, like the rest, too admits that FDI will be negative for India's economy.
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