Anand, Daily News & Analysis (DNA)
September 15, 2012
Indias retail industry, which is pegged at US$450 billion,
could expand manifold with the opening up of foreign direct investment
(FDI) on Friday.
Currently, the so-called modern trade -- or retail chains
have only 5% share of that pie.
The catch, however, is that the 51% FDI decision has been left
to the state governments. Thats where implementation problems
will arise, said experts.
Trinamool Congress (TMC) that rules West Bengal has given a 72-hour
notice to the government to change their decision. TMC, which
is a key ally of the Congress, had managed to push back reforms
in retail sector last year. After stiff opposition from TMC, BJP
and Left, the government had to beat a hasty retreat in November
But Union minister of commerce Anand Sharma said the government
is firm on its decision and there would be no rollbacks.
The opposers contend that entry of foreign retail chains will
wipe out smaller, traditional players.
Arvind Singhal, chairman of Technopak Advisors, a retailing consultancy,
strongly refutes this.
Even when modern retail started in India there was hullabaloo
that the mom-and-pop stores will be wiped away. This has been
proven to be wrong. And if Indian retailers have not managed to
harm the unorganised sector, there is no way foreign investments
will. It has been already proven that both organised and unorganised
sectors can co-exist without much friction.
Investments flowing in also means more jobs will be created,
said Akash Gupt of PriceWaterhouseCoopers. As organised
retail expands, it will hire more people.
The government has pinned a few riders when opening up: Foreign
entities will have to invest 50% in setting up back-end operations
and 30% of the sourcing has to be done from small and medium enterprises.
The sourcing norm, however, is likely to be eased.
Analysts said these two rules will create more and better quality
What about pricing?
The price will not be impacted majorly. If anything, it
may come down due to stiff competition. Better infrastructure
will also ensure that the quality of the products increases tremendously,
said Anil Talreja, partner, Deloitte Haskins & Sells.
The riders also include that any multi brand entity should have
an investment of $100 million (Rs 500 crore) and the stores can
be opened up only where the population is more than 10 million.
At present, there are 53 cities in India that fit this bill.
Analysts said the largest investments are likely to flow into
the food segment.
This decision will also be a big relief for cash strapped domestic
players such as Future Group.
Even global brands will be on the lookout for a strong
domestic partner. This will provide the global players a customer
base, infrastructure facilities and will reduce the gestation
period, said Devangshu Dutta of Third Eyesight, a retail
But investments are unlikely to flow in very soon. Companies
will take time to assess the market and make investments accordingly.
They will also wait for the political situation to stabilise,
said Singhal of Technopak Advisors. The developments have warmed
the cockles of Raj Jain, president of Wal-Mart India, the unit
of the worlds biggest retailer.
We are grateful that the government has realised and appreciated
the value that we will bring to strengthen the Indian economy,
he told Reuters. This policy change will allow us to connect
directly with the consumer and help save them money.
(Published online in DNA
on 15 Sep 2012.)