The Economic Survey 2008-09 tabled in the Parliament, on Thursday, the 2nd July, 2009, by the Finance Minister Pranab Mukherjee, has made many ambitious and bold recommendations on many sectors of the economy.
Paying heed to long standing demand of opening retail sector to foreign capital (FDI), the Survey has sought to allow FDI in retailing (multi-brand, front-end), beginning with the food segment.
According to the Survey, while this will address the concerns of small traders (mom-and-pop stores), it will also help the country’s farmers to gain from ‘farm-to-fork linkages.
Although, the implementation of recommendations made in the Survey are not binding on the government, they do provide direction to the governmenment’s thinking on the subject.
Most modern (organised) retailers, who have been asking for removal of ban on FDI in retail, were excited with the recommendation made by the Survey in its report.
“It is a welcome suggestion and will help the Indian retail sector grow, by leading to inflow of money from overseas brands,” said Kishore Biyani, Chief Executive Officer, Future Group, to PTI.
According to Biyani, Foreign Direct Investment (FDI) will ensure a bigger playing field and sustained competition, resulting in reduction of prices for the consumer. He, however, recommended fixing a certain threshold investment for entering into the sector.
“The government should also fix a certain minimum threshold for FDI in the multi-brand segment,” Biyani said.
In India, while no FDI is allowed in multi-brand retail, it is allowed up to 51 per cent in single brand retail. Many single brand MNC retailers are unhappy with this condition. Only a few weeks ago, the iconic Swedish furniture and home improvement retailer IKEA, pulled out from the country, saying it would wait until the full FDI is allowed in the sector. IKEA had planned to invest $1 billion in India.
According to Ramanathan, “If large Indian organised retail players can exist, then why not foreign brands. The sector will become more competitive.”
Spencer’s Retail, the retail arm of RPG Group, a wholly owned subsidiary of group company Calcutta Electric Supply Company, also welcomed the Survey’s recommendation.
“We view it in favourable light. There is enough room in the Indian retail sector for everybody to grow and FDI will bring about competitiveness between Indian and foreign players,” a Spencer’s Retail spokesperson said.
According to KPMG, a global management consultancy firm, to facilitate FDI in food multi-brand retailing, the government should take steps to strengthen the structure of APMC (Agriculture Produce Marketing Committee).
“APMC has not being rolled out in all the states. There are currently many intermediaries between the producers and the consumers in the food market and APMCs could prove valuable for international food retailers and Indian farmers,” said Anand Ramanathan, Manager of KPMG Advisory Services.
Indian Council of Research in International Economic Relations (ICRIER), a premier economic think tank of the country, which was appointed to look into the impact of BIG capital in the retail sector, had come to conclusion that investment of ‘big’ money (large corporates and FDI) in the retail sector would in the long run not harm interests of small, traditional, retailers. ICRIER has estimated the worth of Indian retail sector at $309 billion dollars (2006-07). According to ICRIER, the sector is projected to reach $496 billion by 2011-12.
Interestingly, recommendations of The Economic Survey have come close on the heels of tabling of another report on retail (prepared by Parliamentary Standing Committee on Commerce) in the parliament, which fearing job losses, has recommended a “blanket ban” on entry of domestic and foreign corporates into the retail sector. Incidentally, the retail sector, after agriculture sector, is the country’s second largest employment providing sector.
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1 response so far ↓
Nishu Kr Gupta // Jul 3, 2009 at 10:03 am
FDI will no doubt accelerate this process, but there is strength in the argument that we should not give in to the lobbying power of the multi-nationals just because they are looking for growth not found in the mature Western markets. India should extract from these Western retailers what India needs, including technology, know-how and best practices not available in India currently.Once the local players have become large enough to face the competition (2 to 3 years), let it be fair game. Let the best player win. And as evident from the experience of Walmart in countries like South Korea and Germany, Retail is a highly local business. It is not always the player with the deepest pockets that wins. Ultimately, it is the
company that understands the customer the best that will have the largest market-share.
Big Retail is here to stay. Assuming that improvements in infrastructure and lower real estate costs become a reality, Big Retail still has a long way to go before satisfying the highly diverse needs of the Indian population. As a result, there will be a steady-state where Big Retail will co-exist with Small Retail. The role that the government plays in the next few years will decide how quickly and harmoniously we reach this steady-state.
NKG
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