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FDI in Indian MBRT

Anand S. ThokalRakesh B. R.

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

had announced (Nov 2011):

100 % FDI in single brand retail and 51 % FDI in multi-brand retail..

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This decision invoked a hue and cry all over..

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

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

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

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

Let’s start with the basics:

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

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Indian Retail Scenario

• The Rs 28,673 billion (US$ 470 billion) Indian retail market is only 3 per cent of Global retail….

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

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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

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Because…Global

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Dinosaurs

IndianRetail

WalMart

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• 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

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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

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• ‘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

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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…

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

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+ 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

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Hence we don’t need to have..

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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…

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And, doesn’t this SITUATION over liberalization in retail industry

remind us of..

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déjà vu…?

• The big fuss before 1991 reforms…?

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

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We know very well that these have actually

fuelled

The Great India Growth Story*

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

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• What ultimately matters is :

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

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Recent Happenings• Sept 8, 2014: The Modi Government has decided to disallow foreign direct

investment in multi-brand retail, Commerce and Industry Minister Nirmala Sitharaman said in New Delhi on Monday.

• Dec 21, 2014: Industry estimates pegged the size of retail sector at $ 560 billion this year, growing by 10 per cent compared with last year. As per various estimates, the industry is now expected to reach $ one trillion mark by 2020, while this target was being eyed much earlier on hopes of FDI.

• Jan 14, 2015: Prime Minister Narendra Modi will consolidate himself and is likely to open up the multi-brand retail sector to foreign investors in due course, noted economist and thinker Jagdish Bhagwati said on Tuesday.

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Top Retailers in India• Reliance Retail Ltd. (Mumbai, 2006)• Pantaloons Retail Ltd. (Mumbai, 1997)• Provogue India Ltd. (Mumbai, 1997)• Shoppers Stop (Mumbai, 1991)• ITC (Kolkata, 1910)

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