FDI IN RETAIL – THE WORLD AT YOUR DOORSTEP
By RumaDubey
Two good decisions in two days. If this mood of gloom and doom had not persisted, these would have led to a boom! First the announcement of an able successor to Ratan Tata and then the much awaited Cabinet nod to increase in FDI in retail – 51% in mutli brand and 100% in single brand.
For the layman, what this news means is that there will be more malls and for those a little bit better informed it will mean India could soon have the likes of Ikea, Wal-Mart, Starbucks, Tesco, Carrefour , Staples, Gas and many more such retail chains setting shop. More choices, more shopping. Ahoy consumerism!
But before we get out our shopping bags and debit cards, it would be best to get more informed about this FDI approval.
What is multi brand retail and single brand retail?
A super market, hyper market, the likes of Big Bazaar, SahakariBhandar, Apna Bazaar and Shoppers Stop are examples of multi brand retail. It is like a one stop shop for many brands. On the other hand single brand is essentially just one brand under one shop – like Titan Showroom or Tag Heur ,Koutons, Fab India. But sometimes there is an overlap – you may find brands like Titan or Tag Heur or say, designer Anita Dongre even in these hyper markets. Thus some exist both, in single as well as multi brand. And that is where the definition needs to be cleared up.
Does this mean we will see money come pouring in from tomorrow?
Not really. This is a door which has been opened up and it is upto the foreign players to chalk out their entry. Given the current turmoil in Europe, USA and around the world, though all would welcome this move, it may take a while to set the ball rolling. So the effect of this Cabinet nod will be seen only 2 to 3 years down the line. Also remember, setting shops would mean huge investments and more importantly, large tracts of land would be required. Finding space on the high street would definitely be a challenge
Will the kirana’s become a relic of the past?
Nah! Despite Big Bazaar and D-Mart, kirana’s have continued to thrive. How many local grocer shops have you seen shut down in your neighborhood? They will co-exist. India is unique in the sense that people will continue to do their day-to-day shopping at these local stores and malls will be an outing or will warrant buying when there are mega sales. Footfalls at malls are high but how many people really buy? When you need milk, do you rush to the local grocer or Big Bazaar? And home delivery of your half kilo dal and quarter kilo rice? Can a super market give you that? Thus proximity and that relationship built with the local stores will score over the lure of the malls. There are around 14 million small shops and none of them have downed shops, with many turning smarter and keeping up with the changing times. Even today, kirana shops at street corners account for 90% of $590 billion retailing in India and there is now way that this increased FDI will replace that. Does this mean that if Ikea comes, carpenters will go out of work? No way! Infact likes of Big Bazaar and Shoppers Stop need to worry when Wal-Mart or Tesco sets shop.
Will this FDI cause inflation?
Unlikely in big cities. After the coming of super markets, haven’t the cost of clothes and footwear gone down. Pulses and grains are also sometimes cheaper during the big sales. Multi-brand retail augmenting food supply chain will help build back-end infrastructure and though this will take time, it is sure to lead to price advantage.Opening the sector will increase competition and improve efficiencies and thus help bring down prices. It would become more about volumes than margins alone. The FDI approval has the essential caveat that procurement should be directly from the farmer. This would mean more money in the hands of the farmer, which is a very good thing and at the same time, it will bring down the gap between the farm-gate prices and what a consumer pays at the shops, which currently is almost double. Reliance Fresh has tied up directly with farmers and this has done away with intermediaries and thus brings down the margins.
FDI will increase unemployment?
First and foremost the premise of this fear, kirana’s going bust, is in itself at fault. Local shops will co-exist and these new and bigger malls will generate more jobs, not just in retail but in realty, construction and consultancy. Experts said the industry would need additional manpower of 15 to 30 million in 10 years. The industry currently employs 35 million people. As per a report on retailing, front-end and back-end operations, store operations, merchandising, logistics and distributions, marketing, procurement, purchase and corporate services are some of the jobs created. Currently, store operations employ 75 to 80% of the retail workforce, merchandising 5-8%, marketing 5-8% and others around 10 to 15%. As time goes and more investment comes in, more jobs will be created. Carrefour India's managing director, Jean Noel Bironneau, had said, “If Carrefour starts its retail operations in India, in about 10 years, we would provide direct and indirect employment opportunities to approximately 20,000 people in the stores itself.†But the road block will be getting quality manpower and training is where companies will have to invest big time.
Does a Cabinet nod mean it’s a law already?
It’s a long drawn process. After the Cabinet approves the Bill, it is introduced in Parliament. Every Bill goes through three Readings in both Houses before it becomes an Act. First reading is introduction of the Bill, second reading is consideration of the Bill and third reading is the passing where House votes on the redrafted Bill. If the Bill is passed in one House, it is then sent to the other House, where it goes through second and third readings. After approval from RajyaSabha and LokSabha, the Bill is presented to the President for assent. After the President gives assent, the Bill is notified as an Act. Subsequently, the Bill is brought into force and rules and regulations to implement the Act are framed by the concerned ministry, and tabled in Parliament.
