India considering 100% FDI in retail: report At present India does not allow foreign investment in multi-brand retail,

while up to 51% is allowed in single brand retail

Mumbai: Indias commerce and industry ministry is considering to propose 100% foreign direct investment in multibrand retail but with stiff sourcing requirements, the Economic Times reported on Tuesday. We are preparing the paper that will be placed for public debate in some time, the newspaper quoted an unidentified senior official in the Department of Industrial Policy and Promotion as saying. At present India does not allow foreign investment in multi-brand retail, while up to 51% is allowed in single brand retail. The discussion paper is expected to make it mandatory for multi-brand retailers to sell products at wholesale prices to small shopkeepers, giving them the benefit of scale on sourcing, the newspaper said. Companies will also have to procure products domestically and help improve returns for farmers, it said. A final decision on the proposal will be taken after deliberations with the consumer affairs ministry, the paper said. New Delhi: The government pulled a sensitive item in the reforms agenda out of cold storage on Tuesday, with the department of industrial policy and promotion (DIPP) releasing a discussion paper on permitting foreign direct investment (FDI) in multi-brand retail chains such as those run by the likes of Wal-Mart Stores Inc. and Carrefour SA around the world. Photo: Harikrishna Katragadda/Mint This move is fraught with political risk and comes a day after opposition parties joined hands for nationwide protests against rising inflation. There have been widespread fears that the entry of global retail giants could hurt kiranastores that dominate the retail trade in India and employ 33.1 million people, the most outside farming. The government has tried to defuse some of these concerns, by suggesting in its discussion paper that the sector would be opened up to foreign firms in a calibrated manner. It has also pitched issues such as inflation control and employment into the discussion about FDI in multi-brand retail. It has been suggested in the discussion paper that modern retailers with efficient cold storage chains could minimize wastage of fresh produce and ease food inflation. India currently lets around Rs1 trillion of fresh produce go waste and more than half of this can be brought to market if the proper farm-to-fork infrastructure is in place. The department has argued that FDI in front-end retailing is imperative to fund cold storage for farm produce.

Is FDI in retail a good idea?

Is FDI in retail a good idea? Business Standard / New Delhi July 14, 2010, 0:57 IST Ads by Google Jobs in J K Tyre : Exp: 1-13 Yrs.Sal : 4L to 15 L PA Register & Get Multiple Interviews TimesJobs.com/Upload_Resume This will make organised retail more efficient and help farmers. Kiranas have natural advantages that will protect them to an extent, but if they are not modernised, the employment impact could be large. Govind Shrikhande CEO, Shoppers Stop

Large investments in infrastructure will help farmers and will boost exports in a big way. It is unlikely organised retail will get more than 15% of the market even after a decade Foreign direct investment (FDI) in the retail sector is currently a hot topic of debate. It is also a sensitive topic considering that the stakeholders in this case are consumers, local retailers and global retailers. The recent announcement by the Department of Industrial Policy and Promotion (DIPP) to discuss various issues related to FDI is a welcome move. It has set the tone for inviting all the stakeholders to comment on various aspects of the move. Lets examine the key aspects related to this decision. To start with, why bring FDI in any sector? Clearly, FDI benefits customers, economy and infrastructure. Our experience in telecom, automobile and insurance sectors clearly shows the success of the FDI policy. With large-scale investments in each of these sectors, customers are getting the best of services and products, and the resultant competition is spurring the players to improve further. Even today, after the sector was opened up, the largest car brand continues to be an Indian one. The retail sector in India has a pretty unique structure. It started with rationing and grew through retail in textile and footwear. Today, India has 15 million-plus retailers who account for $350-plus billion of annual sales. The retail space is dominated by the unorganised sector that contributes to 94 per cent of the sales. During the last decade, many new formats right from departmental stores to hypermarkets and speciality stores were launched in the country. Many global biggies are already present in India. Malls have now become popular among middle-class families in various cities and towns. As the economy keeps on growing, the retail market will continue to make progress. Customers will demand better products and services in line with their growing income and aspirations. This will require large-scale investments in manufacturing, retail space, technology, food logistics, processing, etc. FDI in retail will have a far-reaching impact on various aspects of the economy. If rolled out in phases and with proper checks and balances, it will give a boost to the economy. Customers will get a wide assortment of quality goods at reasonable prices. They will be able to buy the best brands across various categories. Large investments in infrastructure would lead to a rise in farm productivity, manufacturing and food processing as well as cold storage facilities. This would cut down wastage and spur growth in employment, exports and GDP. It can also help revive the textile and handicrafts sector. With appropriate controls in place, our exports can double in three years. The introduction of technology and good management practices will improve product availability, reduce wastage, improve quality and customer satisfaction. China is an example of successful execution of FDI in retail in a phased manner. After FDI in retail, Chinese retailers still hold a majority of retail share. The number of small retailers has doubled. Also, exports and GDP growth has continued unabated in that country. China continues to dominate global trade through large-scale FDI investment in the country.

The biggest argument against FDI is centred on its negative impact on small, unorganised retailers. We believe that the unique model of retail in the country will not only survive FDI but also prosper once its allowed. Indian consumers are very particular about value and quality. They love to buy and cook fresh. Hence, they will continue visiting the regular kirana stores and grocers for their daily needs. The large format players will cater to the monthly needs for products and services. Moreover, there isnt much space available for large retailers to enter the most crowded areas within most of the big cities. Therefore, large-scale retail stores will always remain a destination for big buys. Customers will have to make an effort to reach them. And with difficult road connectivity and infrastructure in cities, this will always remain a challenge. Also, the ingenuity of Indian entrepreneurs has no match. Big retailers will find it difficult to measure up to services like free home delivery, monthly khata and the personalised approach of kirana stores. Even 10 years after FDI is allowed, unorganised retail will dominate the Indian market with more than 85 per cent share. FDI should bring in investments in technology, infrastructure, cold storage facilities, distribution and manufacturing. If the top two retailers, who are already in India, commit to buy 5 per cent of their global purchases, this will translate into exports of $25 billion! a game-changer for the Indian economy. ' In addition to this, India can also become a shopping destination for the world, leading to further boost to the economy. Praveen Khandelwal General Secretary, Confederation of All India Traders Given their outsourcing skills, resources and facilitation from the government, global players will be able to crush competition and charge monopolistic prices The recently released discussion paper by the government on foreign direct investment (FDI) in multi-brand retail is nothing but an attempt to convert the domestic retail trade into crony capitalism. The trading community is prepared to fight it tooth and nail as this involves the question of the survival of their trade. It will adversely affect not only traders but also farmers, transporters, workers and several other sections that are associated with the retail trade. If multi-brand retail is allowed in the country, the sole aim of global retailers will be to dominate the markets they enter into with the objective of capturing the maximum share, as they will be entering the trade for business and not for charity. Given their outsourcing skills, resources and facilitation from the government, they will be able to crush competition and, ultimately, dominate the market by charging monopolistic prices. One reason that has been stated in the discussion paper is domination of value chain by intermediaries as a result, it is said, farmers get only one-third of the total price paid by the consumers. It is necessary to understand who the present intermediaries are. They are the bullock cart men, transporters, agents and small traders. On the other hand, in the case of global players, the intermediaries are the brand ambassadors who are paid crores of rupees, high consumption of power, high cost of warehousing and transportation. The present intermediaries have contributed not only to the economy but also to the substantial social development of the country. Further, small retailers are charged with keeping two-thirds of the margin with themselves, which is factually incorrect. Since 2005, big corporate houses have been engaged in retail operations and their prices are either higher than, on a par with, market prices. This establishes that the two-thirds of the total margin is kept by these big retailers and they are not going to sell their products at lower prices. Therefore, charging the retailers with keeping huge margin is only an attempt to malign the trading community in order to find ways to allow MNCs in the retail sector. After Independence, no efforts were made by the government to develop the existing retail trade into structured, organised retailing. Hence, instead of allowing multi-brand retail, the government should evolve a policy to upgrade the existing retailers, and on the pattern of the Micro, Small and Medium Enterprises Act, we can have an Act to protect and promote small and medium retailers under separate ministries with innovative schemes, such as a cluster approach to convert our unorganised retailers into organised, modern retailers. They should be provided with credit facilities at low interest rates. This will facilitate retail units coming together and transforming themselves into chain shops that will allow bargaining in purchase, hence benefitting the consumer.

It is said that multi-brand retail will prove to be a boon to the farmers. Again, this is wrong. The global players will initially buy products directly from farmers at attractive prices through their procurement centres on contract basis or otherwise. Once the agricultural mandis and regulated market yards are closed, they will radically reduce the procurement prices. As the big retailers possess tremendous bargaining power, farmers will be forced to sell their produce at cut-throat prices, and will even be forced to part with their agricultural land, which will render them as being mere employees of retail houses. After agriculture, retail is the largest employment-generating sector in the country. Due to lack of a level playing field, small retail stores as well as mid-sized departmental and chain shops would be severely hit, thereby depriving millions of people of their jobs and livelihood. Does the government have any plan to provide an alternative source of income to them and arrange for their rehabilitation? While the government has provided many concessions and implemented assistance schemes for the protection and growth of SSI sector, it has done nothing to safeguard the interest and nurture the progress of small- and medium-sized retail units in the country. Prudence demands that the government should not disturb our traditional retail trade, which is running without causing any financial strain to the government. It is suggested that an independent, in-depth study of the retail trade should be carried out by a task force comprising officials, experts and stakeholders to understand the ground realities of the retail trade. Efforts must be made to modernise and organise the existing retail trade instead of inviting MNCs to conquer the country once again. Welcome FDI in retail ET Bureau Jul 8, 2010, 05.44am IST Tags: India| Foreign Direct Investment| FDI The new discussion paper on foreign direct investment (FDI) in multi-brand retail is welcome, if it is, indeed, a prelude to considered, consensus-building innovation in policy. India needs organised retail, as it urbanises and prospers. And retail will get organised, just as surely as motorised transport replaces haulage by animal power in a modernising economy. The question is: Should the shift take place, aided by the capital, competition and knowhow that foreign investment brings with it, or without these benefits? Ads by Google

Get Best Credit Card OnlyCompare Within Banks & Credit Cards Apply Now for No Annual Fee Cardswww.PolicyBazaar.com/Credit-Cards SAS Supply Chain SolutionGet the most of your supply chain & expert advice. Free Info!www.SAS.com Clearly, except for some existing Indian retail operations, the bulk of the Indian economy would gain, significantly, from the emergence of a well-capitalised retail industry that brings the latest technology and management practices to build modern supply chains in India, connecting country and town, connecting small producers with national, and even global markets. The creaky, old distribution system that India has lived with so far has a major flaw: Cornering most of the rise in prices arising from higher demand for rural produce, it greatly distorts the price signals for farmers. This, in turn, hinders the secular rise in farm output that a prospering India desperately needs and cannot be delivered by the government hiking individual support prices, which only shifts acreage from crop to crop without raising the output levels of all crops. The discussion paper is silent on some vital issues. One is the organisational form of rural producers as they interact with Big Retail. Small farmers can undertake contract farming, but have no bargaining power and will be at the mercy of their buyers. Small producers organised into something like Amul are a different kettle of fighting fish altogether. But who will organise them into farmer companies or producer cooperatives that can increase the value-add before sale to the buyer, and have sufficient bargaining power? Then again, without rural electricity and largescale new investment in surface water management, farmers would be hard put to produce more, even with technical inputs from Big Retail. These concerns must be addressed while allowing FDI in retail.