Monday, September 05, 2011

FDI in Retail industry

As per Indian Department of Industrial Policy and Promotion (DIPP)that FDI (Foreign Direct Investment) is inevitable in multi brand retailing. India has been implementing 100% FDI in single brand(Gucci, Louis Vuitton, Nike, Mcdonald , KFC etc) retailing from past couple of years and trying to get the approval in cabinet for FDI in multi brand retailing (Wal-Mart, Tesco, Carrefour, Metro) with 51% since we have accepted the economic reforms in G20 Canada summit. India is the fifth largest retail destination globally; it has been recognized as a lucrative market for foreign investors in the retail industry.

India is a great retail democratic country, we have plenty of neighborhood kirana stores, traditional, and unorganized retailers who are serving the nation from past several decades. The Indian retail market can be divided in to two categories i.e. Organized and Unorganized with market share of 5 % and 95% respectively, the total turnover is $395 billion and it is expected to grow up to $785 billion by 2015. India has been leaning towards organized retail system from past decade and it’s going to reach up to 20% by 2015. Large Indian companies are entering in to the retail business since there is lot of potential to grow i.e Birla More store, reliance fresh, Bharti Easy Day.

India is slowly emerging as a world class market with high value products; growing middle class incomes, urbanization and changes in consumer behavior which are ideal for super markets or hypermarkets. Our agriculture also need large investments to improve our infrastructure in terms of seed supply, agrichemicals, processing, machinery, storage facilities, rural transportation and value chain management. Experts and economists say that there is lot of prospective benefits to consumers and farmers by FDI in retail.

I believe that unrestricted FDI in multi brand retailing is going to affect badly on micro and small retailers. The multinational retailers are going to fill their aisles with international brands with competitive prices and the micro and small retailers are absolutely not in a position to compete with them. The biggest challenge is how to synchronize the harmony between organized and unorganized.

My recommendations on FDI- Retail

1. Indian retail sector contributes 15% to total GDP and providing 8% of total employment which is the biggest employer after agriculture, so the retail sector should be recognized as an Industry and need to be controlled by a separate ministry.

2. Any kind of corporate owned markets shouldn’t interfere in Public distribution system (PDS) because more than 50% of Indian households are depending on this welfare system and most of them are below poverty line.

3. Ministry of commerce and Industry should fix the limit on foreign Investing amount though they have 51% eligibility. If there is no cap on amount, it’s going be a huge threat to Indian retail companies.

4. The Ministry should initiate the kind of business model; i.e. FDI retailers should deal with all kind products like Fresh produces, dry foods and non food items uniformly in the startup itself. If they don’t consider fresh farm produces, I don’t thinks that they won’t set up the value chain for farm produces.

5. The FDI retail outlets should be allowed on socio economic and demographic factors. Geographical radius must be fixed to set up the stores to mitigate the competition among the local retailers and multinationals’.

6. Stringent policies are required for harmonious trade and to control the multinationals aggressive monopoly trade practices. The Government needs to promote the micro, small and medium local retailers and should take necessary steps to grow them.

7. The new jobs created by the multinational retail chains should be reserved for rural people and the FDI retailers should not destroy the existing unorganized retailers’ distribution setup.