100% FDI in retail in India, good or bad...

There is a lot to be said for big retail to come to India, but we cannot simply be taken in and mimic something which is being pushed down our throats because those who make the policy appear to not have the faintest clue on how retail really works in India If there were clear answers in black and white to the question, there would really be no need for any debate on the issue, but the truth is that it is simply not that simple. On a philosophical and emotional level, the answer could be that any form of foreign participation in a domestic market is rife with dangers of the colonialism sort, but in this day and age, while the core concept of being wary of foreign dominance may still be true, the fact remains that there are plenty of ways to ensure that it works on a win-win basis for all concerned. The main problem with the current status of foreign direct investment (FDI) in retail in India is that it does not provide a level playing field to other players of the domestic and small sort. In addition, it appears to take a rather naive and simplistic view on certain aspects, which like myths being repeated, tend to become urban legends. On the other hand, no country can afford to take on an isolationist approach. To start with, it may help to go through the background and policy note on the Cabinet decision on FDI in retail, as put up on various places on the internet. (Facebook, PIB) As this writer sees it, with a holistic view of the subject and not just based on jingoism of the burn down the malls (right view) and bad for farmers (left view) sort, but on rational evaluation of larger issues, there are some points which need to be straightened out. Large retail is inevitable, and that is a simple truth, but there has to be larger perspective for public good which seems to be missing from this policy. The people of India come first, including those who want a better product or service buying or selling experience, and at the end of the day it is their wallets which will decide where they go. But at the same time, the government, with the policy as outlined above, cannot sell the baby with the bath-water, and make things worse. Some suggestions: 1) The present Agriculture Produce Market Committee (APMC) Act requires urgent revamp if we really want to help the rural and agricultural sectors with a better go to market scenario. This, along with rapid introduction of the goods and services tax (GST) as well as ease of inter- and intra-state movement of foodgrain, agri products and fresh produce, would do more to improve matters, as well as do wonders for our economy in a variety of waysmost of all in terms of controlling prices as well as reducing storage and transit losses. 2) The policy shown above makes a case that brands by big FDI retailers need to be carried across borders without in any way making it clear that the quality of those brands needs to be same across borders, too. As of now we see that with these manufacturers and retailers there is one lower quality for sale in India and there is a better quality for sale in developed countriescase in point being soft drinks, processed foods, confectionery, electronics, motor vehicles and others. If anything is by way of a different quality for India for price or other reasons, then let it be clearly marked as such. 3) Specifically in the case of packaged and processed foods, the policy does not say anything about adherence to best case scenarios in terms of labelling of ingredients and avoiding misleading marketing ploys, thereby leading to a situation where outright dangerous products are foisted on Indian consumers. The amount of product detail available for consumers in developed countries must be matched for India, too. India cannot become a vast chemistry lab for processed foods or anything else.

4) More empirical data needs to be provided on subjects like improvement in supply chain. India is the country where the passenger rail ticket deliveries, fresh hot cooked food by dabbawallas and diamonds as well as other precious stones by angadias have set better than global standards in supply chains, so the same standards need to be quantified and applied to those seeking 100% FDI in retail. It is not too much to ask for them to match the Indian standardsunless those who made the policy are ashamed of our prowess. 5) The investments in retail by the FDI route, when they come, should come only through a short-list of recognised tax adherence countries. The misused option of FDI coming in through known or suspect tax havens needs to be blockedfirmly. Likewise, full disclosures of the strictest sort need to be made on who the investors areagain, these cannot be suitcase corporate identities hiding behind consultants and banks in shady tax havens or other countries. Unlike what happened in, for example, airlines, Indians need to know who is investing and from where. And in case there are legal issues, then we need to know who the faces are who will go through the Indian legal system, unless those who made the policy are ashamed of our legal system. 6) The payment processing and cash management as well as tax adherence part of this industry, both in terms of procurement and sale, need to be through the Indian banking system. And by fully transparent methods, so that float as well as control remains in India at all times, as is the case in developed countries. Proprietary payment processing and cash management methods of the sort that take this control out of India need to be firmly deniedthe FDI retailer needs to be on a level playing field here with other Indian domestic retailersinsistence on co-opting RuPAY needs to be part of this policy. 7) Since such huge benefits are being provided to these FDI retailers by India, it must be imperative that these large retailers subscribe and adhere to the RTI Act of India 2005 from day one, along with their first application. This will be in addition to all other requirements that other large retailers in India, like government controlled Canteen Stores Department (Armed Forces), Super Bazaar (ministry of urban development), central government and state government co-op stores, Khadi Bhandars, state emporia and others adhere toincluding best of breed hiring policies. 8) It appears that the policymakers subscribe to the view that more wastage is generated by the present retail system in India and that FDI will reduce wastage. Bearing in mind the huge problem that developed countries have with handling wastage especially of the packaging sort, it will be necessary to quantify this wastage from the outset itself, instead of propagating further the myth that the Indian system generates more waste. And then control the said wastage, again, by defined means. 9) Supermarket design in India should be defined in such a way that fresh food and produce needs to be in front, unlike in other big box shops where it is right at the back or hidden along the sides, forcing people to walk through row after row of packaged and processed foods. This is very important if FDI in retail really means it when they say that they wish to bring the farmers produce to the customer with minimal transaction losses in between of the multiple middlemen sort. And finally, most importantly, 10) The big box FDI model in retail cannot be the reason to do away with the small shopkeeper earning his livelihood on the peripheries of the traditional marketplaces. The big retailer will have to, as policy, provide for space as well as timing to set up options like weekly haats and farmer's markets, either in parking lots or in specially designated stalls set aside for this. Certainly, there is a lot to be said for big retail to come to India, but we cannot simply be taken in and mimic something which is being pushed down our throats because those who make the policy appear to not have the faintest clue on how retail really works in India. The concept of big retail is inevitable,

in some ways it is already there, but the way this present policy has been structured appears to be a sell-out of the worst sortdesigned to destroy the nations core competencies in trading. It will be a shame, as well as a major electoral issue, if the present policy is permitted to proceed along its current path. Because it is wide open and visible that it appears that the present retail FDI policy of the present government is to try and make big retail the only port of call for both seller and buyer. That, most certainly, spells death for the countrys independence.

FDI in multi-brand retail will create 10 m jobs: Anand Sharma

Ridiculing claims that opening of foreign direct investment (FDI) in multi-brand retail will lead to displacement and unemployment, Union Commerce and Industry Minister Anand Sharma on Friday asserted that this bold move would lead to creation of 10 million jobs and billions of dollars in investments during the next three years. Brushing aside the criticism by the Opposition parties, including from key UPA ally Trinamool Congress, Mr. Sharma said that necessary guidelines and press note would be issued by next week giving details of the approved policy. Our initial estimates are that it will create over 4 million jobs in the small and medium industries and another 5-6 million jobs in the logistics sector in the coming three years, he told journalists at a press briefing here. The guidelines regarding the decision to allow 51 per cent FDI in multi-brand retail will be issued by next week. He said many State governments had favored opening of the sector and the government had responded to those demands. The fear that small and marginal traders would stand displaced is wrong. In Indonesia, even after nine years of opening FDI in multi-brand retail, 90 per cent of the business remains with the small trader, he added. Asserting that it was the prerogative of the government to decide the policy and timing of its decision, Mr. Sharma said this was a major step towards providing liberation to the farmers from middlemen and ensuring remunerative price for their produce. This step will help in not only attracting huge investment but also creating jobs in the agro and food processing industries and bring FDI to build the much needed infrastructure in rural India, he added. Stating that the thrust of the policy was for the benefit of the farmers and to ensure huge inflow of funds into the rural infrastructure, Mr. Sharma said this was why a mandatory provision had been made that 50 per cent of the investment would be in rural back-end infrastructure. India has put out its own policy on FDI in multi-brand retail with 51 per cent limit. China, Indonesia, Russia, Thailand, South Africa, Argentina and Chile have allowed 100 per cent FDI in multi-brand retail. We are not following any nation but guided by national interest, he said. The Commerce Minister said all proposals relating to multi-brand retail would be cleared by the Foreign Investment Promotion Board (FIPB) and retailers would have to take licence from the respective State governments for opening the mega stores. The government's decision would pave way for global retail giants such as Wal-Mart, Tesco and Carrefour to set up their mega store retail chains in the country. Mr. Sharma said that the government would have the first right to procure agricultural products. The move will not impact small and marginal retailers. The Minister said the government had also increased the FDI cap in single brand retail to 100 per cent from the current 51 per cent. Single brand product retailing would cover only products which are branded during manufacturing. The foreign investor should be the owner of the brand. In respect of proposals involving FDI beyond 51 per cent, 30 per cent sourcing from SMEs/village and cottage industries artisans and craftsman would be mandatory, he added. This would benefit Indian SMEs, especially in sectors such as textiles, gems and jewellery, leather and jute.

FDI in retail sector: shops down shutters

Most shops and business establishments across the State remained closed on Wednesday as traders responded to a call for a strike issued by the Kerala Vyapari Vyavasayi Ekopana Samithi to protest against the government move to allow foreign direct investment (FDI) in retail sector. Markets and commercial centres were largely deserted in urban centres though a few shops in the suburban areas remained open. A section of restaurants downed shutters as hoteliers joined the strike. Motor workshops also remained closed. The State-wide agitation was part of a national-level protest against FDI in the retail sector. Traders from different States took part in a march to Parliament in New Delhi to register their protest. KVVES vice-president Peringamala Ramachandran said almost 7,000 retail traders from Kerala participated in the march, constituting the largest contingent. He said the strike was total in the State. Traders took out protest marches and staged dharnas at district headquarters, urging the Central government to withdraw the decision to allow 100 per cent FDI in single brand retail sector. The KVVES said the government move would lead to a situation in which small retail outlets were elbowed out by foreign monopolies. Traders feared that it would also drive up prices and worsen unemployment. Final decision...Yet to be.in parliament The UPA government on Wednesday formally put on hold the 13-day-old cabinet decision to allow up to 51 per cent FDI in multi-brand retail. The decision is unlikely to be revisited before the next financial year. While buying peace with the Opposition and allies at the cost of multi-brand retail FDI, the government opted to go ahead with the other part of the cabinet decision of November 24: raising the foreign investment level for single-brand retail to 100 per cent, from 51 per cent now. Retail in India, mostly an unorganized business, is an estimated $590 billion market. Indications are the government is likely to take a positive decision on multi-brand retail FDI around April-May 2012, after the Uttar Pradesh assembly elections. Till then, consensus-building and backchannel negotiations would continue on the matter, say people in the know. The FDI level may have to be tweaked to bring it down to 49 per cent or even lower in the multi-brand category. In fact, suggestions have started coming already from the industry to bring 49 per cent FDI in multi-brand retail. INDIAN DREAM BECKONS Prominent single-brand firms keen on an India entry include: Ikea (Sweden) GAP (the US) Arcadia Group (the UK) Prada (Italy) Hennes and Mauritz (Sweden) Global players already in India through local partnerships include: Louis Vuitton (France) Christian Dior (France)

Jimmy Choo (the UK) Canali (Italy) Zara (Spain) Marks & Spencer (the UK) A senior official in the ministry of commerce and industry confirmed the government was going ahead with raising the FDI limit for single-brand retail to 100 per cent. The official said the government was likely to notify the new rules within a couple of weeks. That means before the present session of Parliament gets over. In the cabinet note, the condition of 30 per cent sourcing from the small-scale sector is also applicable for single-brand retail. It will become applicable the moment foreign equity exceeds 51 per cent. After the all-party meeting this morning, finance minister Pranab Mukherjee announced in the Lok Sabha that the multi-brand FDI decision had been suspended till a consensus was reached with all parties and stakeholders. The stakeholders include political parties and states, Mukherjee said. Leader of the Opposition in the Lok Sabha and BJP member Sushma Swaraj called it a victory of the democratic process. While the largest retailer of the world, US-based Walmart, issued a cautious statement on Wednesday, saying it respected the government decision, its India partner, Bharti, was more open in its criticism of the move. Rajan Bharti Mittal, vice-chairman and MD, Bharti Enterprises, said, It is unfortunate such an important and much needed economic reform has been suspended. The two have a JV in India for cash-and-carry (wholesale) operations, and want to extend the relationship to front-end multi-brand retail as well. French retail major, Carrefour, which is also present in India in the cash-and-carry space and is looking to enter the front-end multi-brand segment, preferred to remain quiet after the government decision. Earlier, it had welcomed the move to open Indian retail. An industry representative pointed out Carrefour would continue with its focus on cash and carry, and wait and watch the situation in multi-brand retail. Kishore Biyani, CEO, Future Group, told Business Standard, "We are appealing to the government to open up FDI in non-food sectors, as there are no contentious issues there." Ficci president Harsh Mariwala called the government decision "deeply disappointing". "It is a highly regressive move," he said. Chandrajit Banerjee, director general, CII, was critical of the government move on multi-brand retail, saying, "The decision will have a strong impact on investor sentiment and also foreign investors."Traders' associations, which had agitated across the country recently against the proposed FDI in multi-brand retail, are in a mood to celebrate now. They will hold a press conference tomorrow to announce their victory. As against the gloom in companies aspiring to expand or enter the multi-brand segment, it was a day to rejoice for single-brand companies. Marks & Spencer, which has a JV with Reliance Retail, said India was an extremely important market for the company. "Our journey in India has been exciting so far and our joint venture partner Reliance Retail has helped us transform our position in this dynamic market," a company official said, adding, "We are very happy with our current relationship with Reliance Retail and don't plan to do anything differently following the recent announcements on FDI." People close to the company said it was already sourcing more than 50 per cent from the Indian market. Ikea, the Scandinavian furniture company, which was waiting for clarity on the government decision, can now go ahead and roll out its India operations. The company's first attempt in India had

not worked out. According to Rajesh Jain, director & CEO, Lacoste, another single-brand retailer, "100 per cent FDI in single-brand retail will not make too much of a difference as it is not as capitalintensive as multi-brand retail." At present, up to 100 per cent FDI is allowed in cash and carry segment and 51 per cent in single brand. No foreign investment is permitted in multi-brand retail. OPINIONS AND SUGGESTIONS:

FDI in multi-brand retail: States could be the deciding factor

State governments will have a big say in whether the international retail giants are able to set up shop or not through the foreign direct investment (FDI) route and even when they do, it will take 5-10 years for the largest players to put up even a dozen stores particularly in the Cash & Carry segment. CII National Retail Committee Chairman and Aditya Birla Retail CEO Thomas Verghese said potential entrants into the retail sector required 35 licences to set up a super market and 43 licences to set up a hyper market, all granted by the States. To date, 11 States are potentially opposing FDI in retail, so clearly, we will look at the progressive State governments and even if there are a few States that are in favour, international players will come in.'' Reacting to fears that smaller shop owners will lose livelihood with the entry of the multinationals, Mr. Verghese said, Over the last five years, modern retail's proportion in the total Indian retail sector has grown from 2 to 7 per cent, growing at 24 per cent annually. Over the same period though, smaller kirana' shops have grown at 10-14 per cent. The larger kirana shops closing down has less to do with the entry of modern retail but more to do with the younger generation owners choosing not to remain in the business.'' CRISIL ESTIMATES Rating agency Crisil estimates FDI inflow of $2.5-3 billion over the next five years in multi-brand retail. The food and grocery (F&G) vertical could attract a larger share of the likely FDI inflows. The clause specifying 50 per cent investment in back-end infrastructure especially aligns with the commercial requirement in the F&G segment. F&G accounts for two-thirds of Indian retail sales, but has organised retail sales of only around 2 per cent. To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale,'' said Ajay D'Souza, Head, Crisil Research. Every percentage point reduction in supply chain cost and resultant gain in operating margin can improve equity internal rate of return of an F&G store by 250-300 basis points. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity.'' The retail sector requires heavy investment and despite FDI being permitted in back-end infrastructure ten years ago, no significant player came in. Indian firms have built back-end infrastructure but do not have the wherewithal to expand. Foreign players will not come here if the front-end is not allowed and need assurance that presence in the whole chain would be allowed. The aggressive growth plans of leading Indian retailers, which are under pressure due to increasing debt stock and moderation in customer footfalls in the current year, will get a strong boost from the availability of capital. However, for smaller and regional retailers, the scale of operations and control over costs will determine their ability to weather pressures of aggressive expansions by large retailers,'' said Anuj Sethi, Head, Crisil Ratings. The FDI proposal offers good prospects for large established Indian retailers. FDI would enable these players to attract capital for driving their expansion plans and in addition, benefit from scale, cost efficiencies and technology brought in by foreign retailers. The FDI proposal is likely to catalyse joint ventures between Indian and foreign organized retailers. Depending on whether they buy into existing retail chains or set up new joint ventures, the share of foreign retailers in multi-brand organised retail will remain moderate.