FDI Hue and Cry The huge potential in the organised retail that remains unexploited in India and

the risks of allowing Foreign Direct Investment (FDI) though it may generate employment or benefit the end-user
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 organised 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 Though one thought is that the FDI will take the retail sector to global standards in terms of pricing, product quality and link to global markets, the perception that organised retail had wiped out small traders in countries like Thailand was also stressed. The threat of retail majors making huge investments to capture and monopolise the market in the long run was one area of concern voiced by many. Fear of Threat: The FDI will come in and displace existing traders. There is no doubt that it will generate employmentbut many will lose jobs too. There will be a global sourcing of products and loss of livelihood cannot be ruled out over a period of time. We have seen this happening in other countries, The farmer-will-benefit' propaganda was not true as it did not happen in the West. If allowed, foreign retail majors will make huge investments and withstand losses for years. Ultimately they will wipe out small/medium traders and take over the market. Their core operating philosophy will usually be concentration and monopoly, he said. Terming the FDI in retail trade as anti-national, Three retailers had taken over 38 per cent of the market in Thailand where the local traders were displaced. Opportunity : Retail Consultant and Trainer V. Rajesh sought to set aside the apprehensions saying that any well-regulated industry would serve the purpose greatly with or without FDI. Pointing out that there was no instance of any small trader closing down business following the entry of retail majors in metros, he said FDI would bring in finance, technology and efficient supply chain management systems. Garment makers: Favouring the Centres move to allow 51 per cent FDI in multi-brand retail, garment makers say it will bring in more opportunities for them in the shape of getting big size orders from global brands like Wal-Mart and forging exclusive partnerships with international players. However, local garment brands who are also into manufacturing, are wary of opening of large shops by global retailers, suggesting that it could hurt their well-established domestic market. Despite the fact that there was a hue and cry over allowing FDI into multi-brand retail across the country, garments makers have termed it as move in right direction. Because of the 51 per cent FDI allowed into multi-brand retail, garment units here will open more possibilities for local players to supply their garments by giving large volume of order size to us which will further boost the local garment and terry towel making in the state, Local players also see the opportunity in having a joint venture with global retailers like Wal-Mart for producing exclusively for them to cater to Indian market. We can have an exclusive arrangement with international retailers for making garments for them only and it will provide a fillip to the manufacturing sector who usually gets small size of orders from big brands at present, he said. On the other hand, local garment brands are apprehended over the entry of brands big brands into retail sector. If companies like Wal-Mart opens their shops here, they can pose stiff competition to domestic brands like ours as they have the capacity and resources to offer wide variety of items to customers,
INDIAN ECONOMY NEEDS SWOT ANALYSIS AND IT SHOULD START FROM DISCUSSION IN PARLIAMENT

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