Finally, the Manmohan Singh government has opened the floodgates allowing Foreign Direct Investment (FDI) in multi brand retail into India. Now global retail giants such as Walmart of the US, Carrefour of France and Tesco of UK and others can buy up to 51 per cent in Indian modern retail companies such as Big Bazzar and Pantaloon owned by the Future Group, More owned by the Aditya Birla Group and Tata Group’s Trent to name a few.
A highly contentious issue, FDI in multi brand retail has been vehemently opposed by the Left parties and the BJP led National Democratic Alliance (NDA) as it would render small kiranas (called mom and pop stores abroad) out of business but government pushed it through in the name of saving the Indian economy from the brink of collapse.
American newspaper the Washington Post recently wrote a sarcastic article on our Prime Minister to possibly wake him up from deep slumber and the trick seems to have worked as a resurgent Dr Singh made his government to announce host of reform measures in two days, a sort of overdose for our slowing economy.
In November last year the government had cleared a proposal allowing FDI in modern retail but had to postpone the decision amidst steep protest from the opposition and trader groups. Former Finance Minister Pranab Mukherjee who has now become India’s President had promised in the Parliament that FDI would not be allowed until a political consensus is reached but the government hurriedly implemented its decision despite facing flanks from various quarters.
This hasty decision forced Congress’s ally Trinamool Congress (TMC) to quit the government and TMC chief Mamata Banerjee alleged that the government forced through its decision to divert the attention from the coal mine allotment scam.
The allotment of coal blocks to industrial houses, power brokers and relatives of politicians without a proper bidding process were made by Prime Minister Dr Manmohan Singh when he was handling the coal portfolio.
Recently the Comptroller and Auditor General of India (CAG) had estimated that this allotment has caused a loss of Rs 1.86 lakh crore to the national exchequer, more than the 2G spectrum allocation scam that amounted to a loss of Rs 1.76 lakh crore.
WHERE DOES MODI STAND?
Gujarat Chief Minister Mr Narendra Modi has echoed his party’s line by criticising the government’s proposal to introduce Foreign Direct Investment (FDI) in multi-brand retail. Mr Modi has stated that FDI in retail would allow cheaply manufactured foreign goods to be imported in India which will hurt Indian economy. The BJP President Mr Nitin Gadkari and senior leader Mr Venkaiyah Naidu expressed identical views. Since the BJP favours FDI in principle should it not explain in detail to the public why FDI is bad only in retail? It has been argued that it will hurt small retailers. This view has been countered by opponents. Mr Kishore Biyani, CEO of Pantaloons Retail, has created big investment in retail in West Bengal. He has introduced a novel approach that disproves fears of FDI in retail hurting small retailers.
Mr Biyani has introduced the franchising system to rope in small retailers and corner shops to sell products supplied by the big retailer. In fact it has been analysed that the structure of Indian cities and the prevalent shopping culture renders the traditional Walmart model followed worldwide unworkable in Indian cities. Unlike cities in the west and elsewhere shoppers in India do not generally do their shopping by cars on a weekly basis by driving out to a big mall or store far from the city centre. They use the corner shop on almost a daily basis. If the big stores institutionalise through a system of franchise for corner shops quality and price control the supply of goods provided to them it would benefit both the big hub store and the small retailers. This experiment is showing promising results for Pantaloons in West Bengal. Why cannot the BJP discuss and if necessary amend the government’s policy to ensure that farmers, small retailers and consumers can all benefit from FDI in retail?
This is especially desirable because BJP is bending over backward to attract FDI in other sectors. For example, last July Mr Narendra Modi visited Japan to confer with Suzuki Chairman Mr Osamu Suzuki to discuss investment opportunities in Gujarat. He visited the Suzuki plant. Mr Osamu Suzuki assured Mr Modi that he would bring more industrialists to Gujarat. It was decided that Suzuki would train 500 Indian workers in its work culture before they are deployed in Gujarat. Reciprocating Mr Modi’s visit the Suzuki Chairman in August along with the company’s Indian head called on Mr Modi’s residence in Gujarat. Mr Suzuki told reporters: “I came to thank Mr Modi because he visited me in Japan , and I came to India to attend AGM of Maruti.”
What the media was not told is that during their interaction Mr Modi requested that all the ancillary parts of Maruti be also manufactured in Gujarat. The Suzuki Chairman was not averse to the idea in principle but sought terms. Mr Modi assured him 100 per cent FDI in all the plants to be set up by Suzuki in Gujarat. That by any standards is a strong pro-FDI policy. There is nothing wrong with that. But does it square with the BJP’s general approach to the government’s initiative for FDI in retail? If it is only retail trade that is the party’s bugbear it should clarify that and endeavor to iron out differences instead of projecting wholesale opposition to FDI. If my information about Mr Modi’s offer of 100 per cent FDI to Suzuki ancillaries obtained from reliable sources is incorrect let him publicly deny that he stands by that offer made to Suzuki. If he does that I will know the real situation. Suzuki also will know the real situation. Let Mr Modi speak up and tell the nation where he stands. Mere posturing for elections does not indicate responsible opposition.
By Rajinder Puri
What is more astonishing is that the minority government, which later received outside supports from opportunistic parties, gave legal sanctity to its decision on a day when opposition parties had organised a nationwide bandh in protest against the government’s action.
In a clear demonstration of crony capitalism, two large industry associations which normally stay away from quantifying losses caused by bandhs promptly came out with statements saying that the partly successful Bharat bandh had caused a loss of Rs 12,500 crore to the nation.
Possibly, a tit for tat measure for CAG’s estimates about the losses caused to the country by the spectrum allocation and coal mine allotments without auction.
FDI IN INDIA’S MULTI-BRAND RETAIL SECTOR
Last year India’s central government hastily shelved a proposal allowing FDI in the multi-brand retail sector due to intense opposition.Since then, the US has expressed concern regarding barriers to investment in this sector, with similar concerns voiced within India as the economy shows signs of slowing down and capital flows dry up. Prime Minister Manmohan Singh, after taking charge of the Ministry of Finance, indicated that the onus is on the government to revive the ‘animal spirits in the country’s economy’. As a result, investors are hopeful among other things of a favourable decision regarding FDI in the multi-brand retail sector that will presumably create millions of jobs, help check inflation and modernise the agriculture sector, which in turn will liberate millions of hapless farmers and poor consumers from the hold of the middlemen and petty retailers.
But supporters of FDI in this sector are wrongly using arguments based on comparative statistics and total welfare to counter concerns about the dynamics of adjustment and the distributional impact of the proposed policy change. In fact, as discussed elsewhere, the costs of adjustment are unlikely be distributed randomly and relatively vulnerable sections are likely to be net losers. The proposed policy change is also unlikely to tame the sticky problem of inflation and is not necessary for modernising the agriculture sector.
An inefficient supply chain in agriculture is largely driving India’s food price inflation, which can be controlled by creating an efficient ‘farm-to-fork infrastructure’. But it is not clear why foreign capital, technology and managerial expertise are indispensable.
Let us consider the need for foreign capital. The government continues to pour billions of dollars into leaky buckets, such as the Food Corporation of India and the public distribution system, without tackling mismanagement and corruption. If a fraction of these funds were properly invested in building a good quality supply chain, then FDI would not be desperately needed. Critics could argue that India does not have the relevant technology; but finding better ways of storing and transporting crops is not really difficult. Also, the potential of transferring of managerial technology from multinational retailers to their Indian partners and competitors cannot be overvalued. Learning from their experience in India might be as difficult as learning from their experience in other countries.
More importantly, the White Revolution that radically transformed India’s dairy industry demonstrated that Indian capital, technology and managers can do everything foreign companies can do without generating as many distributional problems.
But can FDI help achieve certain policy objectives such as inflation control? Perhaps not. On the one hand, it is argued that FDI will not harm unorganised retailers because the organised sector’s share will remain small in the foreseeable future. On the other, it is also argued that the impact of this small share will be so significant that it will restrain inflation in the economy in the short term. The two claims do not add up.
Let’s assume that FDI can indeed help achieve policy objectives. What about the costs of adjusting to the regime change from retail democracy to a new arrangement? It is argued that India has no reason to be apprehensive because such changes have been successful in countries like Argentina, Brazil, Chile, China, Indonesia, Malaysia, Russia, Singapore and Thailand. But when these countries allowed FDI, they were either already middle-income countries; had a relatively small part of their population engaged in retail trade and agriculture; were in the midst of a serious crisis; or were not ‘noisy’ democracies. On the other hand, India is still a largely poor country, where unorganised agriculture and the retail trade continue to be the largest employers and absorb the bulk of the unemployed youth. And more than anything else, India is a functioning democracy that is not facing a debilitating crisis. In this context, any attempt to introduce a policy without addressing the concerns of the vulnerable will eat into the vitality of the democracy by promoting distrust of the political system.
To conclude, distributional concerns regarding the proposed policy change remain unanswered, and it is unclear if the change is indispensable for achieving legitimate policy objectives like inflation control and the modernisation of agriculture and the agricultural supply chain. So, FDI in the multi-brand retail sector is not a panacea for India’s economic woes. Pushed into the corner, supporters would like to defend themselves by claiming that allowing FDI in multi-brand retail is, in fact, just a signal to international investors, who have suddenly grown wary of India. But isn’t risking the livelihoods of hundreds of millions to revive elusive ‘animal spirits’ irresponsible? (EAF)
By Vikas Kumar
(The author is Assistant Professor of Economics at Azim Premji University, Bangalore)
The way the retail FDI was forced in also shows how desperate the government was. It was not in the agenda for discussion in the Cabinet Committee on Economic Affairs’ meeting. The meeting was called to consider a proposal to allow foreign airlines to invest upto 49 per cent stake in Indian carriers and clear some other reform proposals.
But, suddenly hours before the crucial meeting this agenda was pushed in and was promptly cleared. Interestingly, some big modern retail companies were unaware of such a move. But the government had its own agenda in mind.
“Organised, modern retailing is already present in our country and is growing. All our major cities have large retail chains. Our national capital, Delhi, has many new shopping centres. But it has also seen a three-fold increase in small shops in recent years. In a growing economy, there is enough space for big and small to grow. The fear that small retailers will be wiped out is completely baseless.
“We should also remember that the opening of organised retail to foreign investment will benefit our farmers. According to the regulations we have introduced, those who bring FDI have to invest 50 per cent of their money in building new warehouses, cold-storages, and modern transport systems. This will help ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down. The growth of organised retail will also create millions of good quality new jobs.
“We recognise that some political parties are opposed to this step. That is why state governments have been allowed to decide whether foreign investment in retail can come into their state. But one state should not stop another state from seeking a better life for its farmers, for its youth and for its consumers.
“In 1991, when we opened India to foreign investment in manufacturing, many were worried. But today, Indian companies are competing effectively both at home and abroad, and they are investing around the world. More importantly, foreign companies are creating jobs for our youth—in Information Technology, in steel, and in the auto industry. I am sure this will happen in retail trade as well.”
—MANMOHAN SINGH, Prime Minister of India
Government’s spine doctors feel that this is the need of the hour and this aggressive posturing would send out signals to the international community that the government means business and no longer suffers from policy paralysis.
They feel that FDI and Foreign Institutional Investor’s (FII) money will pour in to improve India’s balance of payment situation. There is a huge current account deficit caused by rising fuel subsidies and vote garnering programmes such as MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) and the government feels that the flow of dollars would save the country from economic collapse.
How much retail FDI would flow into the country is still not known but the government advocates that the country would get over $10 billion (Rs 55,000 crore) in five years in the front end of multi brand retail while over 10 million (1 crore) jobs would be created in 10 years.
“We welcome the move and feel that it has several advantages. The customers will not only get value for their money but will also help keep prices of products stable. The farmers will also get a good price for their produce. The decision will also lead to less wastage of food and vegetables and would lead to abundance of jobs. As of now about 35 per cent to 40 per cent of the food, particularly vegetables, is wasted. But allowing FDI in multi-brand retail, will improve things. Those who will open these chains will also buy from our wholesale markets. Small businesses such as kirana shops will also not be affected as, all over the world, people go to their neighborhood shops to buy items of daily requirement.”
—SHEILA DIKSHIT, Chief Minister, Delhi
Prime Minister Dr Singh had to appear in national television to defend the government’s decision. In an address to the nation Dr Singh said that it was the government’s responsibility to defend the national interest and protect the long term future of India’s people.
“This means that we must ensure that the economy grows rapidly, and that this generates enough productive jobs for the youth of our country. Rapid growth is also necessary to raise the revenues we need to finance our programmes in education, health care, housing and rural employment,” the Prime Minister said.
He said he knew what happened in 1991 and he would be failing in his duty as Prime Minister if he did not take strong preventive action right now.
Dismissing the position’s allegations the Prime Minister said that modern retailing is growing in major cities and despite this the number of small shops has increased three fold recently.
“In a growing economy, there is enough space for big and small to grow. The fear that small retailers will be wiped out is completely baseless,” Dr Singh asserted. He said that the opening of organised retail to foreign investment will benefit India’s farmers. The country’s supply chain will also get a boost as 50 per cent of FDI money will be spent in building new warehouses, cold-storages and modern transport systems.
“This will help to ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down,” the Prime Minister summed up.
“India does not require the kind of reforms which would (rather) than creating employment destroy employment.”
—MAMATA BANERJEE, Chief Minister, West Bengal
He said the growth of organised retail will create millions of good quality new jobs. He said state governments are free to whether allow FDI in their state or not but one state should not stop another state from seeking a better life for its farmers, for its youth and for its consumers.
“In 1991, when we opened India to foreign investment in manufacturing, many were worried. But today, Indian companies are competing effectively both at home and abroad, and they are investing around the world. More importantly, foreign companies are creating jobs for our youth—in Information Technology, in steel, and in the auto industry. I am sure this will happen in retail trade as well,” the Prime Minister said.
A PERSPECTIVE ON FDI IN RETAIL SECTOR
The Indian retail industry has experienced high growth over the last decade with a noticeable shift towards organised retailing formats. The industry is moving towards a modern concept of retailing. The size of India’s retail market was estimated at US$ 435 billion in 2010. Of this, US$ 414 billion (95 per cent of the market) was traditional retail and US$ 21 billion (5 per cent of the market) was organized retail. India’s retail market is expected to grow at 7 per cent over the next 10 years, reaching a size of US$ 850 billion by 2020. Traditional retail is expected to grow at 5 per cent and reach a size of US$ 650 billion (76 per cent), while organized retail is expected to grow at 25 per cent and reach a size of US$ 200 billion by 2020.
The US-based global management consulting firm, A T Kearney, in its Global Retail Development Index (GRDI) 2011, has ranked India as the fourth most attractive nation for retail investment, among 30 emerging markets. As India’s retail industry is aggressively expanding itself, great demand for real estate is being created. The cumulative retail demand for real estate across India is expected to reach 43 million square feet by 2013. Around 46 per cent of the total estimated demand between 2009 and 2013 will be come from Tier-1 cities. For instance, Pantaloon Retail added 2.26 million square feet (sq. ft.) of retail space during the fiscal 2011 and booked over 9 million sq. ft of retail space to fructify its expansion plans in future.
Some of the key players in the Indian retail market, with a dominant share are:
1) Pantaloon Retail Ltd, a Future group venture: Over 12 mn sq. ft. of retail space spread over 1,000 stores, across 71 cities in India.
2) Shoppers Stop Ltd: Over 1.82 mn sq. ft. of retail space spread over 35 stores, in 15 cities.
3) Spencer’s Retail, RPG Enterprises: Retail footage of over 1.1 mn sq. ft. with approx 250 stores, across 66 cities.
4) Lifestyle Retail, Landmark group venture: Has approximately 15 lifestyle stores and 8 Home centres.
Other major domestic players in India are Bharti Retail, Tata Trent, Globus, Aditya Birla ‘More’, and Reliance retail. Some of the major foreign players who have entered the segment in India are
■ Carrefour which opened its first cash-and-carry store in India in New Delhi.
■ Germany-based Metro Cash & Carry which opened six wholesale centres in the country.
■ Walmart in a JV with Bharti Retail, owner of Easy Day storeplans to invest about US$ 2.5 billion over the next five years to add about 10 million sq ft of retail space in the country.
■ British retailer Tesco Plc (TSCO) in 2008, signed an agreement with Trent Ltd. (TRENT), the retail arm of India’s Tata Group, to set up cash-and-carry stores.
■ Marks & Spencers have a JV with Reliance retail.
FINANCE AND ASSISTANCE
The Indian retail sector accounts for 22 per cent of the country’s gross domestic product (GDP) and contributes to 8 per cent of the total employment. India continues to be among the most attractive investment propositions for global retailers. Cumulative foreign direct investment (FDI) inflows in single-brand retail trading, during April 2000 to June 2011, stood at US$ 69.26 million.
Till now FDI up to 100 per cent was allowed for cash and carry wholesale trading and export trading under the automatic route, and FDI up to 51 per cent was allowed in single-brand products, with prior government approvals. However, the Government recently passed a cabinet note and permitted FDI upto 51 per cent in multibrand retailing with prior Government approval and 100 per cent in single brand retailing thus further liberalizing the sector. This policy initiative is expected to provide further fillip to the growth of the sector.
Multiple laws and regulations are in force at the central, state and local levels for governing the retail sector. Absence of specific legislations controlling distribution trade and the existence of a plethora of laws such as the Essential commodities Act, the Cold Storage Order, the Weights & Measures Act, labor laws, the Shops Establishments Act and so on, leads to market distortion.
Timely and effective implementation of GST will help bring about market integration. Streamlining the barriers for interstate movements and removal of all octroi and sales tax check points is possible if the implementation of GST is done with a national, on-line tax payment system. There should be quick implementation of all the provisions of the APMC Act, in letter and spirit, namely the institutionalization of market intermediaries, contract farming and so on.
Some of the key challenges faced by the sector are:
1) Shortage of skilled manpower: Front-end/retail assistant profiles in stores form a major proportion of the employment in the retail sector while store operations account for 75-80 per cent of the total manpower employed in the organized retail sector. Unfortunately, there are very few courses specific to the retail sector and graduates/post graduates from other streams are recruited. Further, retail training opportunities such as niche courses for areas like merchandising, supply chain and so on are limited. The condition is more alarming in the unorganized sector where the manpower is not equipped with even the basic level of retail specific and customer service skills, which adds to their incompetence vis-à-vis the organized sector. A cohesive effort to develop skills within the sector can have a significant potential impact on productivity and competitiveness, both within the sector and on the wider economy.
2) Lack of industry status: Due to the absence of ‘industry status’, organized retail in India faces difficulties in procurement of organized financing and fiscal incentives. The Government should grant the much needed ‘industry status’ to the sector so that the sops that come with it help promote both big & small retailers.
3) Policy induced barriers: Organized retail in India is managed by both the Ministries of Commerce & Consumer Affairs. While the Ministry of Commerce takes care of the retail policy, the Ministry of Consumer Affairs regulates retailing in terms of licenses and legislations. There is a need to govern retail operations through a single apex body. A single agency can take care of retail operations more effectively, especially with regard to addressing the grievances of retailers. The development of the retail sector can take place at a faster pace if a comprehensive legislation is enacted.
4) Real estate: Lack of sophisticated retail planning is another major challenge the sector faces. Available space is easily interchangeable between commercial and retail use. In most cities, it is difficult to find suitable properties in central locations for retail, primarily due to fragmented private holdings, infrequent auctioning of large government owned vacant lands and litigation disputes between owners.
Organized retail is a new phenomenon in India and despite the downturns, the market is growing exponentially, as economic growth brings more of India’s people into the consuming classes and organized retail lures more and more existing shoppers into its open doors. By 2015, more than 300 million shoppers are likely to patronize organized retail chains.
The growing middle class is an important factor contributing to the growth of retail in India. By 2030, it is estimated that 91 million households will be ‘middle class’, up from 21 million today. Also by 2030, 570 million people are expected to live in cities, nearly twice the population of the United States today.
Consumer markets in emerging market economies like India are growing rapidly owing to robust economic growth. India’s modern consumption level is set to double within five years to US$ 1.5 trillion from the present level of US$ 750 billion. Thus, with tremendous potential and huge population, India is set for high growth in consumer expenditure. With India’s large ‘young’ population and high domestic consumption, the macro trends for the sector look favorable.
Online retail business is another format which has high potential for growth in the near future. The online retail segment in India is growing at an annual rate of 35 per cent, which would take its value from Rs 2,000 crore (US$ 429.5 million) in 2011 to Rs 7,000 crore (US$ 1.5 billion) by 2015. For instance the Tata Group firm Infiniti Retail, that operates its consumer durables and electronics chain of stores under the ‘Croma’ brand, is in the process of tapping net savvy consumers. Similarly, the Future Group, that operates a dedicated portal ‘Futurebazaar.com’ for online sales, has revealed that it is targeting at least 10 per cent of the company’s total retail sales through the digital medium. (FICCI Report)
Prime Minister’s friend, philosopher and guide Montek Singh Ahluwalia, deputy chairman of Planning Commission is saying in public that modern retail would more than double in a very short time and it would not pose any threat to small retailers.
There are apprehensions in certain quarters that like in Thailand, small shop keepers in India will be forced to down their shutters as their customers will shift to big malls. One estimate says that nearly 70 per cent small shops in Thailand had to close down after their government allowed FDI in retail trade. The BJP on its part feels that multinationals may not find it attractive to invest in India and the argument that only MNCs would bring in best practices into India are absurd.
FDI IN RETAIL
THE NEXT BIG STEP TOWARDS GROWTH
The Confederation of Indian Industry (CII) National Committee on Retail recently submitted an industry analysis on the crucial issue of Foreign Direct Investment (FDI) in retail, a step towards opening up the organised retail sector to foreign companies.
The Department of Industrial Policy & Promotion (DIPP) has been very actively establishing a platform for discussion and providing a way forward on this issue. The CII submission was in response to the Discussion Paper circulated by DIPP on ‘FDI in Multi-Brand Retail Trading’ to the industry, for inputs and suggestions. As per the current scenario, 51 per cent FDI is allowed in single brand retailing and 100 per cent in the Cash & Carry format.
With the opening up of FDI in multibrand retail, there could be spiraling growth in the industry, with the entry of global retail giants such as Wal-Mart and Carrefour. According to experts, the bulk of the Indian economy would gain significantly from the emergence of a well-capitalised retail industry that brings in the latest technology and management practices to build modern supply chains in India, connecting small producers with national, and even global markets. The reform can be a way to ease the massive supply bottlenecks that have helped keep inflation stubbornly high.
CII held extensive discussions over two months with concerned stakeholders in the Retail industry to draw out recommendations on the issues cited in the Discussion Paper. The recommendations were again validated at the first meeting of the CII National Committee on Retail on 29 July in Mumbai, where the leading retailers of the country converged. These suggestions, if implemented by the government, could lead to extensive growth in the total size of the retail trade. Moreover, the technology, quality standards and marketing that FDI will bring in will lead to new economic opportunities, creating much higher employment generation.
For purposes of clarity, a distinction has been made between food and non-food retailing under multi-brand retailing. Food retail accounts for nearly 2/3 of the total retail market in India and comprises of staples, dairy, fruits and vegetables. Non-food retail comprises the balance 1/3 of the market and includes apparel, textile, footwear, hard consumer durables (appliances and electronics) and other specialty retail (e.g. furniture, furnishings, and sport goods).
- FDI in multi-brand retail must be permitted.
■ The sector is capital intensive and FDI will broaden the range of options available to raise capital.
■ Entry of strategic investors will bring in global standards and best practices in logistics, inventory management, warehousing, merchandising, service and waste management.
■ FDI would bring in more players and provide more options to the consumers and the suppliers (farmers and manufacturers). Suppliers with improved competitiveness can look at export opportunities.
■ FDI in multi-brand retail should include both strategic and financial investors, including FIIs and private equity.
- However, there should be a cap on investment, which should become higher with time.
The initial cap on investment could be pegged at 49% under the automatic route and 74% under the approval route, in order to balance the interests of various stakeholders. To ensure that only serious investors are encouraged, some restricting conditions around the exit (say, a minimum lock-in period of 3 years) may be put on foreign investment in the food or non-food category.
- FDI should be leveraged to create back-end infrastructure.
Improving the backend is a key driver to profitability. It is only natural for retailers to invest in the back-end to improve their competitiveness. The investment in non-store assets could range from 30% to 60% (given the initial situation of the infrastructure). However, no stipulation should be prescribed for the back-end as it will happen automatically when front end retailing is open to international retail chains.
There is a clear need to distinguish between food and non-food for specifying stipulations on investments in back-end.
For food, the back-end constitutes a supply chain which includes logistics (transportation), handling, cold-chain for storage, contract farming, F&V sorting, grading and collection centres, as well as regional processing centres for items of mass consumption. It will also include training and development establishments to create a talent pipeline.
For non food, such as electronics, apparel, general merchandise, sports equipment, no substantial back-end infrastructure needs to be created, since the supplier will have his own manufacturing capabilities.
- CII agrees with DIPP that only genuine players, who can bring in capital or expertise, should participate in the sector.
A possible means to ensure this in the food category is to provide a filter that only allows investors above a certain scale, or undertaking a minimum threshold of investment. The scale and size of investors would differ by format since some formats require greater scale and size (e.g. food retail) than others (e.g. books/furnishings). Thus, in the non-food category, there should not be any stipulated limit. Further, restrictions on exit can be imposed in both categories. For food, minimum capitalization norms can be suggested, depending on the level of foreign investment.
- CII recommends that no stipulation to employ rural youth be put, while retailers can be asked to develop training infrastructure to generate employment and employability.
Empirical evidence reveals that organized retail can create substantial employment opportunities. In India, modern retail has already created over 600,000 new jobs in the last decade, with the potential to create an additional 6.5 million jobs by 2018.
- CII also recommends maximum local sourcing from not only the SMEs but all local players. For non food, local sourcing stipulations need not be applied, as the suppliers would set up their own manufacturing capabilities.
- In order to help small retailers, CII feels that the Government should streamline the current regulations, instead of adding new ones. This will also help small retailers run their businesses better and follow ethical practices and contribute to tax revenues.
Consumer rights should also be protected through various consumer laws, forums and civil courts. For this too, greater streamlining and proper enforcement of existing regulations should be ensured, rather than additions to them.
- CII also suggests streamlining and simplification of current procedures for the Retail sector, without introducing any additional regulation or regulator.
Indian retail is currently highly regulated. For instance, a hypermarket business requires over 30 licenses and approvals and is impacted by 40 different regulations, cutting across more than 15 central and local government bodies at various levels!
Similarly, small retailers are subject to many regulations most of them at a local level. An additional regulatory structure would add to the burden of the retailers and increase the cost and complexity of monitoring and governance for the government.
Ridiculing the government former Finance Minister and senior BJP leader Yashwant Sinha says, “Though there may be certain “best practices” of the multinationals in processing, cold chains, transportation and the like which can be emulated, there is no technology that is available only with them and not with India. So for this FDI is not required.”
He said the Prime Minister appears more concerned about foreign investment which forms only two per cent of India’s Gross Domestic Savings. “We can’t accept that FDI will secure India’s future,” Sinha says.
Now FDI in multi brand retail has become a reality and we have to live with this. Whether it would eclipse the kiranas only time will tell. But retail, the second biggest employer in India with 44 million jobs is poised to see a massive shift of job to organised retail where working conditions and wages are far better than traditional shops.
We may not remain a nation of shopkeepers, a British legacy that we have so dearly embraced.
By Jully Acharya from Mumbai