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FDI: Retail Goes Global, Politics National!


FDI: Retail Goes Global, Politics National!

By Ayush Prasad
 
Nov 29: Every fish is scared of a new fish in the pond- it could compete for food and when it finds no food, it could eat the other fishes. We all like status quo and change is usually not welcome. Change is never easy and it usually has to be forced. It is said Rajiv Gandhi wanted to bring about Globalization and Liberalization after his visit to China in 1988, but only when IMF forced us to change in 1991, did we change. It is easier for political parties to paint a picture of gloom and spread fear than to stand up and help people face the new environment.

Competition is very important as it brings out the best in people. It eliminates the weak and promotes efficiency. The good outperform their abilities while the weak perish.  It forces us to work hard and push ourselves to do much better.

Over 90% of Indian entrepreneurs are in the Retail Sector- a child carrying a few magazines at a traffic signal to street vendors to shopkeeper to large mega-marts- all are retailers. It is easy to be a small retailer: one does not have to register a company and in most cases one does not register with the municipality. In several cities, most retailers operate out of illegal structures by building an extra floor for their shops or encroaching on the pavements. After agriculture, it is amongst the most unorganized sector of the Indian Economy and the single largest source of black money due to massive evasion of commercial and income taxes.

The Union Cabinet approved the proposal to allow 100% Foreign Direct Investment in Single Brand Retail and 51% Foreign Direct Investment in Multi Brand Retail. It has been met with expected reaction of fear, rhetoric and has become another reason to disrupt Parliament. It seems impossible to bring about change in the polarized political environment. The Government says that it will create jobs, while the opposition says it will lead to mass bankruptcy and unemployment.

Single Brand Retail refers to stores selling products of one company. At present, franchisees sell such products, with this new regulation the company can directly set up stores and sell their products. This segment would see most profound impact in the textile business. Foreign Brands would be able to set up more stores quickly and create jobs. This would lead to employment opportunities in these stores. But smaller retailers and their non-branded suppliers would face stiff competition. Both would try to increase customer base and price wars would occur.

Foreign Brands would try to woo lower middle-class customers from unbranded stores by reducing costs. Due to high import taxes, they would be forced to locally manufacture their inventory, thereby leading to factory jobs. They would have to research and adapt their fashion to Indian trends leading to investment in retail and jobs for fashion designers. The unbranded stores would also cut costs and improve quality in attempt to retain customers and attract poorer customers. Poor people would be able to afford better quality clothes. Government would benefit from higher tax collection as it can control and check tax evasion more effectively in larger stores.

Multi-Brand Retail would face a huge challenge to raise sufficient funds for 49% investment from India and the several riders’ makes it difficult to compete in the Indian Markets. The multi-brand retail stores would face stiff competition from players like Big Bazaar, Reliance Mart etc. If the stock market is to be believed, most foreign players would invest into existing players rather than start independent stores. The much needed funds would make the stores larger and extend them to new towns and areas.

Large retail stores have actively worked on backward integration of the supply chain. Several retailers have set up storage capacities and contracted farmers to produce quality produce. Farmers get a fair price and are not entirely dependent on Government for procurement. Investments such as mechanization, better seeds quality, private irrigation etc have helped the agrarian sector. Loans are cheaper in abroad and those funds would help in the process of backward integration. The consumers would benefit with goods at cheaper prices and quality. They would also get a clean environment to shop from and get choice.

Smaller stores who do not evolve with the changing times would shut down and some jobs may be lost. But more jobs would be created in these stores and the supporting ecosystem, thereby absorbing the jobs lost. Indian Retail is going to be worth US $ 1.2 Trillion in another 10 years; hence the pie is sufficiently large enough for everyone.

We are Indians and world-beaters. We should not fear anyone, but work hard to compete and win.

 

Ayush Prasad - Archives:

 


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Comment on this article

  • John Tauro, Mangalore

    Thu, Dec 1 2011

    The question is why should the Government permit FDI above 50 percent? Why not all allow indigenous investors in the field a higher stake so that a major share of the profits remain in the country for boosting the economy. What is the necessity for foreign retailers like Walmart to enter the country when our own industrialists / entrepreneurs have the capacity to invest in and operate such ventures?

    DisAgree [10] Agree [4] Reply Report Abuse

  • Bulsam, Mangalore

    Wed, Nov 30 2011

    ... Even a modest chain of 200 supermarkets, to be set up all over India in selected towns and cities in the next three years, will require an investment of about Rs 2,000 crore (Rs 20 billion), at the rate of Rs 10 crore (Rs 100 million) per supermarket to cover the infrastructure and working capital.
    Each supermarket may take 2 or 3 years before it becomes profitable. There is a risk that a few of them may even fail.
    How many Indian entrepreneurs will be willing and able to commit this level of investment and undertake the risks involved? That is where the international experience and skills that may come with FDI would provide the confidence and capital.
    Apart from this, by allowing FDI in retail trade, India will become more integrated with regional and global economies in terms of quality standards and consumer expectations.

    DisAgree [9] Agree [23] Reply Report Abuse

  • Bulsam, Mangalore

    Wed, Nov 30 2011

    The argument that the advent of FDI and supermarkets will displace a large number of traditional shops is similar to the argument used during the era of industrial licensing, which was meant to protect small-scale industries. But eventually the inefficiencies and quality standards of the protected small-scale companies become apparent even to socialist politicians and licensing was abolished. Small-scale industries have not died. Instead, they have learnt to co-exist as suppliers to large-scale industries.
    In the case of retail trade, the small shops in large parts of the country will enjoy built-in protection from supermarkets because the latter can only exist in large cities. On the other hand, the ability of supermarkets to demand pricing and quality standards from manufacturers will benefit even kirana shops, who can even buy from the supermarkets to sell the same products in smaller towns and villages.
    Continued.....

    DisAgree [7] Agree [14] Reply Report Abuse

  • Jude, Mangalore Dubai

    Wed, Nov 30 2011

    BJP is a baniya party and one can understand their opposition to FDI in retail. All these years the back bone of the BJP who are the middle men have been eating into the farmers due and having a merry time. Now with the FDI they are scared as the farmers will have direct access to these retail giants to sell their produce at higher prices. At the the same time the consumer too will benifit with lower prices. Also a lot of wastage of produce which is currently pegged at 45% will come down. FDI is the best legislation to come out after a long time.

    DisAgree [7] Agree [22] Reply Report Abuse

  • Krishna, Mangalore

    Wed, Nov 30 2011

    The PM  is acting in a hurry and so is the Congress of Sonia and NCP of Sharad Pawar. If India needs investment we need not sell ourselved to Foreigners. But bring back the Swiss Bank money which is 75.00 lakh crore. THE UPA govt is not in a hurry to bring back that money if they are really concerned about job opportunities for Indians.
    Why the Sonia and Pawar group are so hell bent on this is to bring the black money outside in a clandestine manner.
    Our Puppet Minister oipens his mouth only when their interests are hurt. When it comes to Swiss Bank money , Lokpal he is too subdued.
    FDI = Fraudulent Deceitful Intentions....
    Should we welcome it ???

    DisAgree [32] Agree [10] Reply Report Abuse

  • Agnello, Mangalore/Muscat

    Wed, Nov 30 2011

    Kishore Biyani of Big Bazaar in 'Business Standard'said the 50-odd cities permitted for FDI are also those with high consumption of food. Any increase in consumption will have a positive impact on agriculture and, therefore, for farmers. “Farmers will surely benefit only a few traders may lose out,”

    DisAgree [3] Agree [13] Reply Report Abuse

  • S.Moorthy, Mangalore/Dubai

    Wed, Nov 30 2011

    Mr. Jatin is right........Exactly what is going to happen. Let our players like Big Bazar, Reliances....etc to do more such retail showrooms where it is required. FDI in what format now is definitely destroy our farmers and small traders. FDI in current format is purely with hidden agenda.

    DisAgree [23] Agree [6] Reply Report Abuse

  • Agnello, Mangalore/Muscat

    Wed, Nov 30 2011

    The fear of the unknown seems to be spooking us in retail liberalization. FDI in automobiles has made India into a auto hub for small cars and one of the biggest suppliers for auto parts in the world.Liberalising steel made us net exporter of steel . Tata Steel is one of the world’s most efficient producers of steel now and even SAIL the old and rusty public sector is now nimble and world class.KFC and Mc Donalds did not take away the flavor of Masala Dosa’s and Idli Vada’s . Now we can see idli.com at various international airports.Starbucks is smaller chain than Coffee Day and Barista in India as they have bettered the concept.

    FDI in retail will usher transparency and provide farmers better price for their produce than from the chain of unscrupulous brokers and middle men who take farmers for a big ride. It will give better product and choice to consumers. The only people who may be effected are the middlemen and the brokers but the better organized among them will innovate themselves into the supply chain . But they have made their money already by duping the poor farmer. There will be many an opportunity for the educated youth to innovate into the supply chain.

    As big retail requires better infrastructure, infrastructure will improve.
    For the fear of dumping cheap goods from China. Anybody can do it already.It’s the customs which equalize dumping.
    And remember Tatas brought Jaguar, Land Rover. Tata steel got Corus.Maybe one day Bharat Mall can take over Walmart

    DisAgree [8] Agree [17] Reply Report Abuse

  • jatin, mlore

    Wed, Nov 30 2011

    To explain how dangerous FDI can be to a ordinary man,just one small example is enough. If people remember there were lots of local cold drink manufacturers in DK. Few years back Coca cola & Pepsi deliberately launched Rs.5 per bottle and was locally bottled for almost an year or two. People started enjoying both these MNC's and local players just got wiped out. Now both MNC's have stopped Rs.5 bottles and forced to have oonly the big ones with huge profits. these big players can withstand loss for more then 2-3 years since they are longtime players and meantime the local players are finished or totally wiped out!!!

    DisAgree [11] Agree [28] Reply Report Abuse

  • A. S. Mathew, U.S.A.

    Wed, Nov 30 2011

    India must have foreign investment
    to create more jobs and prosperity,
    but allowing mega department stores like WALMART in India is going to be a suicidal economy
    policy, which will turn like the old British East India Company.
    Walmart policy in the U.S. is to establish a store, and uproot all the small stores, and take complete
    monopoly of the area. If they are
    not profitable, they will leave the place and the area will be totally barren. Walmart is the
    biggest importer of foreign goods,
    out of which 90% is from China.
    How many million jobs are lost in the U.S. due to the influx of foreign goods? Walmart and Sam
    Whole are the top players in this
    cheap dirty and totally selfish
    game plan.

    Starting FDI factories in India
    is a great idea, but Walmart will
    be dumping cheap foreign goods
    in India to compete with the local
    stores, and very easily Walmart can
    beat them. So, hundreds of business
    operations are going to be uprooted
    by Walmart. Billions of dollars
    will be shifting to foreign countries through Walmart and
    the already richest Sam Walton
    family is going to be more richer
    by pushing others in to the open
    road. I don't belong to any
    political party in India, but I am
    totally opposed to this dangerous
    idea.

    DisAgree [11] Agree [24] Reply Report Abuse

  • Tony, Mangalore/Sydney

    Wed, Nov 30 2011

    I agree with the comments of AD, Harsha and Sudhir, Mangalore when they say that small retailers will eventually be wiped out, and the profits earned by these giant multinationals will be taken away from the country.

    Also, if you go by the experience here in Australia, where the Food Giants like Woolworths and Coles are currently operating in a big way, these large companies have a massive bargaining power to negotiate very low prices when they buy their fruits, vegetable, meat, milk and other dairy products from the local farmers and producers, and the later are not at all happy about it since they do not get satisfactory price for their produce, and in the process quite a few farmers have quit farming altogether.

    However, there are quite a few advantages from the consumer point of view, since they will be in a position to procure their their requirements at one place instead of going from shop to shop, in an organised way, and also get quality products at quite moderate prices.

    While I do not agree with quite a few things what the writer, Ayush Prasad has said in his article, I certainly agree with his point of view that the Government would stand to benefit largely from higher tax collection, as there will be proper accounting/tax collection system in place and thus
    less chances of tax evasion by these multi-nationals, whereas presently, I know for sure, a lot of small shop owners manipulate their accounting books, and thus manage to avoid large amount of tax.

    DisAgree [9] Agree [17] Reply Report Abuse

  • ad, mangloor

    Wed, Nov 30 2011

    By allowing in a cabinet decision and without a parliamentary vote, Mr man Mohan Singh is making Indian masses fools. By selling India to FDI in retail, this is like traitorship.
    India is a country with majority of people employed or self employed in an unorganised sector, that is why Indian government does not have national welfare system unlike Western countries.

    FDI retail will kill small shops, small business businesses and self employed and mamma and pappa shops and the lively hood. Also, here small profits will remain in India for investment.Unemployment will rise.
    Large foreign retail stores will open mega malls and many Indians will be happy to cart trollys for shopping. While in initially these stores will sell, undercut and sell dirt cheap to kill all local small stores and businesses. Once they have gotten rid off, these people, prices will be hiked by these stores without any bargaining power. People will have no cholice but to pay ticketted prices. Profits will be diverted abroad after meeting local costs. The jobs they create will be small and they will come under organised sector on pay rolls and taxation, which will be a windfall to the government.
    FDI retail is not a choice for India for sheer lifestyle and demographics. India does not have to be like a western nation for malls. Common sense should prevail and not boodoo economics major.
    Manmohans government must be brought down. Otherwise our nations poor will suffer while the few rich will mint

    DisAgree [15] Agree [9] Reply Report Abuse

  • Anthony, Mumbai/Canada

    Wed, Nov 30 2011

    Suhdir, you certainly enjoying retail malls, etc in UAE, but don't like the same in India !?? The very fact that, India over the years had a too socialist conservative economy mindset, thats why people like you & me had to venture to the A Gulf countries to earn taxfree salaries & support our folks back home.

    DisAgree [9] Agree [24] Reply Report Abuse

  • capt.cornelio, udyavar

    Tue, Nov 29 2011

    this is the joint venture of all parties to avoid passing lokpal bill.no politician want this bill passed so they can loot the country.

    DisAgree [5] Agree [8] Reply Report Abuse

  • Sudhir, Mangalore/Sharjah

    Tue, Nov 29 2011

    This is not a good move. FDI in food sector is not the need of the moment. It can be invested in other bigger scale projects lile Steel, energy sector. Imagine if Foerign investement and the big international supermarkets emerge in growing india ..all the local small scale vendors will run out of business, rotten things from west will be forced here with cheaper rates, people swicth their good eating habits, money go out of country , remember food is ever demand buisness. Farmers loose their bread and butter, loose their land, loose intertest in farming. my god where our ploticians are leading us!! we must protest and not allow this to happen. This is absolutely not required at this stage, India today is on demanding side, and this is not going to add greatly to our growing economy. Please protest this and save india .

    DisAgree [22] Agree [16] Reply Report Abuse

  • Harsha Malhotra, Mangalore/New Delhi

    Tue, Nov 29 2011

    Mr.Ayush..what you said is right..india retail is going to be worth..but where profit will go..out of country...it's same like already in the market.. two big wolves -anglo dutch unilever and american proctor gamble..60% products in the market..is of there's with different brand name in different country...small small retailers will finish completely..how they can survive..money will land in pockets of rich people..if wal-mart like companies will enter in india..not good idea...how the poor will survive..is it government think of that!!!

    DisAgree [14] Agree [18] Reply Report Abuse

  • Dr S Kamath , Mumbai

    Tue, Nov 29 2011

    As per the Latest Uncofirmed report Government has agreed for the Adjournement of Parliamnet with Debate on FDI -Retail and a VOTE .Let us see will the Govt survive ?

    DisAgree [14] Agree [17] Reply Report Abuse

  • Agnello, Mangalore/Muscat

    Tue, Nov 29 2011

    I concur Ayush

    DisAgree [12] Agree [1] Reply Report Abuse

  • Rahul, DXB - MUM

    Tue, Nov 29 2011

    Good One Iqbal Kapu, Manglore - Dubai keep it up i like your comments. JAI HO

    DisAgree [12] Agree [17] Reply Report Abuse

  • Iqbal Kapu, Manglore - Dubai

    Tue, Nov 29 2011

    Soniaji & CONGRESS should approve minority quote before FDI retails go global in INDIA other wise we will protest the same we need equal right is FDI shareeven i request Dalit Muslim & Dalit Christian should come or join with us in protest.

    DisAgree [26] Agree [60] Reply Report Abuse

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