April 22, 2013
has been six months since the Indian government allowed 51 per
cent FDI (foreign direct investment) in multi-brand retail. However,
in spite of numerous attempts at wooing foreign retailers, there
has hardly been any investment. Global retailers who had lobbied
for access to India's multi-brand market have, so far, shied away
from entering. It is not enough to criticise the government,
said Finance Minister P. Chidambaram. India Inc. should
go back and loosen their purse strings.
Commerce Minister Anand Sharma and his team at the department
of industrial policy and promotion (DIPP) have been meeting foreign
retailers, consultants and industry representatives. They networked
with the who's who of global trade at the World Economic Forum
in Davos in January, but FDI in multi-brand retail in India remains
India is not an easy market to do business, said
Devangshu Dutta, CEO of Third Eyesight, a specialist management
consulting firm focusing on consumer products and retail. Retailers
will have to put infrastructure in place along with a host of
government clearances. A calibrated opening would have been better.
China took 11 to 12 years to open up its retail sector. They [the
government] should have consulted people across the spectrum,
rather than hasten the process. They have overstated economic
benefits and understated adverse effects.
None of the global retail giantsSainsbury's, Walmart, Carrefour
and Tescohas expressed a desire to enter the Indian multi-brand
retail sector. We have not received any proposal for relaxation
of norms, said Saurabh Chandra, secretary, DIPP.
Sainsbury's and Tesco have opened sourcing offices in India but
are still noncommittal on multi-brand entry. We have no
plans to open stores in India as we are continuing to focus on
growing our business in the UK, said Tom Parker, spokesperson
A reason for the reluctance of prospective investors is the continuing
protests by local traders and politicians. The presence
of global retailers will lead to loss of jobs and local shops
will not survive, said Praveen Khandelwal, secretary general
of Confederation of All India Traders. They will bring predatory
pricing and end competition. Even in the case of cash-and-carry,
they have been flouting norms. We will continue our opposition.
India's first wholesale joint venture Bharti Walmart's cash-and-carry
store in Agra has 48,000 registered members. The store is abuzz
with activity as local shopkeepers and traders pour in to stock
up their shops. They make impressive margins. I save Rs.8
to Rs.100 on various products, said a shop owner. Seeing
its popularity, Carrefour has opened a store in another part of
The cash-and-carry business serves as a learning ground for global
retailers, who first want to get comfortable with wholesale operations,
infrastructure and supply chains before venturing into multi-brand
retail. However, there are other reasons, too.
The FDI policy states that each state can decide if it wants
to allow foreign retailers into its territory. With Gujarat, Kerala,
Odisha, Uttar Pradesh, West Bengal, Madhya Pradesh and Bihar expressing
their reservations, retailers are left with few options.
Allowing foreign investment in the retail sector is clearly
in violation of Gandhian principles and ideology, said Odisha
Chief Minister Naveen Patnaik. FDI in retail will also lead
to loss of income for small traders across the country.
Even in states that have welcomed FDI, the opposition's stand
on the subject is key as retailers are at risk of losing their
investment if the government changes.
While a lot of background work is being done by global
retailers looking to enter the Indian market, the uncertain political
environment makes them jittery, says Darshana Shah, business
head of marketing and visual merchandising, HyperCity Retail.
With elections round the corner, people are still waiting
and watching. Many foreign retailers are visiting stores, doing
surveys and due diligence, but it will take time.
The policy states that foreign retailers can open their outlets
only in cities with a population of more than 10 lakh. Going by
the 2011 census, there are 45 cities that make the cut. Of these,
only 19 can attract FDI as the remaining 26 are in states that
The sourcing clause is also a contentious issue. Under the policy,
multi-brand retailers should source 30 per cent of manufactured
or processed products from Indian 'small industries' with investment
in plant and machinery not exceeding $1 million. Apart from
worries over quality, the mandatory sourcing norm will restrict
retailers in getting products with technical specialisations,
says Pinakiranjan Mishra, partner and head of retail and consumer
products at Ernst & Young, India. Retail players will
have to incur high costs towards training a large number of small
suppliers, with the brand reputation at stake. Foreign retailers
can't keep monitoring whether the small industry has exceeded
The policy also requires foreign retailers to invest 50 per cent
in 'back-end infrastructure' within three years. The government's
argument for the clause is that it wants to strengthen supply
chain infrastructure. Globally, however, the supply chain is either
outsourced or shared between various players.
Everyone investing in their own supply chain is a highly
inefficient model, said Arvind Singhal, managing director
of retail consultancy Technopak. There are concepts of third-party
and fourth-party logistics wherein the third party builds the
cold chains and warehouses that are used by several players.
The major chunk of back-end cost will comprise land cost and rent
of warehouses, but many foreign retailers already have back-end
facilities for their existing wholesale ventures.
The slowdown of the world economy has made foreign retailers
all the more cautious. Most are from countries currently under
severe financial strain. So, they would rather put their house
in order before venturing out.
Deterrents to foreign multi-brand retailers
* Mandatory 30 per cent sourcing from Indian small industries
* Political uncertainty
* Mandatory large investment in back-end infrastructure
* Violent protests from trade unions and shop owners
* Global slowdown and reputation issues. Walmart's Indian unit
under the government scanner