FDI in Indian Retail Industry

The big fuss over

FDI in INDIAN RETAIL..

www.profmanishparihar.blogspot.com

November 2011

Indian Government (comprised of a coalition of political parties called the UPA)

has announced (Nov 2011):

100 % FDI in single brand retail and

51 % FDI in multi-brand retail..

This decision has invoked a hue and cry all over..

• Opposition political parties are threatening to STALL the Parliament Winter Session..

• Even political leaders within the ruling UPA government DIVIDED on the issue..

eg. Kerala CM, Ramesh Chennithala & DMK leader Karunanidhi and others

But why is everyone so scared about it..??

Let’s start with the basics:

14

Source: http://www.slideshare.net/rahulogy/the-great-indian-retail-story

Global Retail is a $14 trillion industry

Source: http://www.clearwatercf.com/documents/sectors/IMAP_Retail_Report_2010.pdf

Indian Retail Scenario

• The Rs 18,673 billion (US$ 401 billion) Indian retail market is only 3 per cent of Global retail….

Source: http://www.ibef.org/industry/retail.aspx

• Of this only 6% is organised retail as of 2010.

• The rest 94% remains unorganized:– What we call Kirana

Stores, ‘mom-and-pop’ stores, people selling on footpaths and so on…

• But surprisingly, Indian retail sector accounts for 22% of the country's gross domestic product (GDP) and contributes to 8 per cent of the total employment…

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So, what are the THREATS of allowing global retailers in

India..?

Threats:

• Global giants like WalMart will crush our unorganized retail sector..

(Which consists of around 12 million kirana stores in the country )

Source: www.indianretailing.com

Because…Global

Dinosaurs

IndianRetail

WalMart

• Hence, if we open up our retail sector, then our desi retailers and the millions of kirana stores will go out of business..

• Indians will be drained of all their hard earned money through consumerism..

• Money will be drained out of our country

In short, as they say in Gaul..

“The sky may fall on our heads*..!”

*From the popular comic series: Asterix

But let us take a look at the other side of the coin..

A recent study by IIM-A and Tata Institute of Social Sciences says..

Source: Prof. Arbind Sahay (IIM-A) and Prof. Gordhan Saini (TISS)“Effect of credit and low price guarantee on consumer purchase intention-A comparative study of kirana store and modern retail store in an Emerging Market, 2011

• ‘While low price guarantee (LPG) is the attraction of malls, a majority of customers are ready to go to the kirana stores because of the credit facilities and the level of personalized service’

• kirana stores have a very strong “knowledge intimacy” with their customers

Hence, Malls & Kirana Stores can co-exist in India..

Indian Consumer Behavior

• Indian consumer does NOT drive to the outskirts of the city in her big car at the end of each month to purchase her monthly groceries…

Also..

• She sometimes goes to malls for the thrill and shopping experience, but her major chunk of purchases are from the unorganized sector..

+ Conditional FDI..

• The current FDI relaxation comes with a

condition: 30% of sourcing of all products has to be done from Indian suppliers / SMEs..

• This recommendation can create much needed employment in India

Hence we don’t need to have..

Our desi retailers and kirana stores can give WalMarts of the worlda run for their money..!

Wait…..

By the way, what is the current state of our retail industry?

Pathetic condition of supply side channels..

of the existing un/organized retail industry as well as Government-run Public Distribution System..

This is an important factor contributing to spiraling inflation..

Public Distribution System (PDS) is almost defunct.. With grains rotting away / eaten by mice..

Food wasted in FCI godowns could have

fed 2500 lakh families for 10 years!!!

Source: http://arindamchaudhuri.blogspot.com/2010/07/food-wasted-in-fci-godowns-could-have.html

With around 20 to 30 crore Indians sleeping hungry every night and over

7000 Indians dying of hunger every day, such waste is not less than a criminal offence.

• A fresh estimate from the ministry of food processing says a whopping Rs 58,000 crore worth of agriculture food items get wasted in the country every year.

• That’s almost 50% of the total annual agricultural produce..!!

Source: http://www.rediff.com/money/2007/mar/16food.htm

Hence, our country’s supply chaininfrastructure is grossly

underdeveloped..

FDI in retail can result into developing “farm-to-fork” infrastructure consisting of integrated storage, cold chain and transport links..

A much needed repair of our grossly leaking distribution system…

And, doesn’t this big fuss over liberalization in retail

industry remind us of..

déjà vu…?

• The big fuss before 1991 reforms…?

• The big fuss before letting global telecom players enter Indian Telecom Industry before 2000…?

We know very well that these have actually

fuelled

The Great India Growth Story*

*Not factoring in the great Indian 2G Scam… :-P

• What ultimately matters is :

– Operational efficiencies..– Best deal to the final customer..– True globalization…

The big fuss over

FDI in INDIAN RETAIL..

So that’s it about..

with all these angry birds around..

What kind of bird should we be right now....?

© www.profmanishparihar.blogspot.com

The end.? ?