Sunday, March 20, 2011
FDI IN RETAIL = POLICY IMPLICATIONS FOR INDIA = CAUTION NEEDED
FDI IN RETAIL
Today, the big debating point in India’s Corporate Sector is – Do we want FDI in the RETAIL sector (or) Do we not want it?
Some of us, especially those in the Corporate Sector, are very enthusiastic that FDI in Retail (or multi brand Retail) will lift the economy and the general mood of the Industry to a new high.
Some of us, especially those in the small retail sector, are afraid that millions of existing small retailers will be turned jobless by the big, Foreign retail chains.
Which of these assumptions is Right? Or, are they both right?
Whether a Policy decision to permit FDI into retail (or multi brand retail) sector will gladden the Big Retail stores of US, UK, Germany, France etc and induce them to rush into India with billions of Dollars to establish their brand of Big retail chains is some thing that is becoming increasingly doubtful, given the current global scenario. While last year saw increasing FDI and FII inflows into India, current year is seeing Reverse Flows.
The current Political and Investment Scenario in India does not seem to be very conducive in the eyes of the Foreign Investors who are probably adopting a WAIT and WATCH attitude, before making investment in sectors like retail – or probably, in India as such, at present.
There are elections in several states and there are Political uncertainties in all these states. Who will emerge victorious in each state is unclear to political Pundits. How these election results will influence later policies at the centre and in the states also need to be watched. The Coalition Dharma is always changing – with each election. It has not been carved out on the rock as a permanent, unchangeable thing.
Second; One Scam after another hitting the news stands every week, with almost embarrassing proof, if not conclusive proof, is not adding to the comfort of even the Indian Investors – as we can see from the tumbling SENSEX and NIFTY indices. This is happening, despite some very good performances by several NIFTY and SENSEX companies and by several sectors.
India’s stock, as a transparent, corruption-free, red-tape free country, is taking severe hits. This could be turned into an opportunity to put in place some stringent regulations and regulators – and enhance the reputation of the country’s Political administration. This is yet to happen – possibly because, every week, some thing new is hitting the news and there is no respite.
Despite all this, given Dr.Manmohan Singh’s reputation and clean record and also of some of his Senior Ministerial colleagues, there is still a possibility that some thing good and fresh can come out of all this. But, we have to wait for such a development. So, a policy signal from the Government on FDI in retail, may not automatically result in huge FDI inflows into India right now. There are already sectors into which FDI is permitted, and there is nothing great happening in any of those sectors.
Third, the current global scenario is becoming even more unpredictable, than India’s own internal troubles. What may happen tomorrow and in which country – is not really presenting a stable Investment-worthy global environment. Global Investors will naturally want to choose a country – which presents no uncertainties and no hassles. Can India present itself as one?
For a moment, let us assume that FDI is permitted in the retail sector and huge FDI actually comes in and we find vast chains of retail stores from all western countries in India, will the assumption that the Indian small retailer will close his shop come true?
This may happen to some extent at least – though, we will never collect or know accurate dependable statistics on this point.
Today, there are millions of small retailers, who have established small retail shops and survive on the income they derive from these shops. What happens when a big shopping complex comes in the midst of a cluster of small retail shops? We do find that the buying habits of the residents undergo a change. Many people in the vicinity tend to buy from the Bigger shops or shopping Malls, for several reasons.
They can pick what they want. They can go round and see what new has come. They can buy things that were not in their minds when they entered the shopping Mall. There are no bargaining hassles. There is no adulteration. The whole family can go and have a better buying experience. Possibly, these are coming at a slightly higher price. But, the Buyer’s own temptation and the family’s support and encouragement changes the Buying habits. It is happening.
Wherever a big shopping Mall is coming up, this change in the habits of the buyers is happening. This is bound to affect the small retailer, who cannot give these services. We must assume that about 75% of all the money currently going to the bigger corporate retail chains would otherwise have gone to the small retailers, if the bigger Malls did not exist. I think this is a fair enough conclusion.
There is no doubt that the small retailer needs to modernize and meet customer expectation at least to some extent. Not only that – some of the small retailers are in the habit of ADULTERATION of many products – which is absent in the Big Malls. The small retailers must change their ways in some of these aspects. They are changing but not fast and not enough.
This said – it is necessary that India ensures that its small retailers not only survive but also that they are enabled to move higher in the value chain. Government cannot create millions of jobs, trades or professions of this order which is now available in the Indian retail sector – and hence, it must be extremely catious to introduce measures which can take away millions of jobs, professions or trades in this sector. Today – the biggest problem is rural unemployment – closely followed by urban unemployment. Now – if we render millions more of people jobless – that would be magnifying India’s already existing unemployment problem.
As the country’s economy is growing, these small retailers will also grow and contribute immensely to the growth of India. What is needed now, is to regulate their working better, help them move up the value chain and make them serve the customers much better than at present.
Today, we already have India’s own Corporate retail Chains of some-what Small shops and really Big Shopping Malls. The same story can be seen wherever a Big shopping complex is established. Some like Subiksha were closed due to sheer lack of staying Power – but a Wal-Mart can sustain losses for a decade, and then become a monopoly. But, what Indian retailers would have lost in the mean time – will never be assessed at all.
What could be the unsuspected, or unknown fall-out of allowing FDI in retail?
We need to think of that too.
Think of Huge Chinese shopping malls littering the landscape in India’s bazaars. Already, one can find many smaller, make-shift shops selling cheap Chinese goods at many places in India. We don’t know whether they are duty paid, or duty-free, or duty-evaded!!
There is already a saying that no one can beat the Chinese on Price. And, this is true. So, we may have FDI from China in retail at the lower end and Wal-Mart at the higher end.
It is not only Jobs – but we may not see even Indian Goods in most of these shops.
Where are Indian Brands of TVs in any shops today? All of them (with one or two small exceptions) have closed up long ago, when the Foreign Brands entered Indian shops. Ditto, with most electronic items. Our manufacturers opening up their arms to FDI in retail can hit them hard too. They should not be blind to that possibility.
So, we must tread this path cautiously. We must assess whether we are ready to tread this path.
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