The Battle

R e ta i l

for

What is FDI in retail?

Retail battle: Its finally about politics and numbers, not FDI FDI in retail: Why it works for everyone FDI fineprint: Easing FDI doesnt ease problems plaguing retail 04 06 08

The verdict
FDI in retail: Why the politicians are illogical, and have got it wrong Dont pity the kirana guy, he knows how to fight back Economy, not kirana shops, is biggest loser in retail FDI debate Why the kirana dukan doesnt care about Big Brother 11 13 15 17

All sides of the debate

GOVERNMENT
FDI in retail distinct and different: Sharma Out on a limb: Govt says FDI in retail will immensely benefit farmers

Reader debate: Is FDI in retail bane or boon?

PUBLIC

India Inc appeals political parties to support FDI in retail India Inc divided over FDI in multi-brand retail

INDUSTRY

FDI in retail: Opposition, allies term it anti-people Will not allow Parliament to function until FDI in retail is withdrawn: NDA

OPPOSITION

Why some farmers are relieved to be dealing with Wal-Mart

Farmers

Retail FDI: The merits are over-hyped, say academics

Academics

Cong meets over FDI in retail: Is a rollback on the cards?

Will FDI last?

FDI nod given, global retailers wait for more clarity

The world is waiting

FDI in retail
What is

Retail battle:

Its finally about

politics and numbers,

not FDI
he Congress is hell-bent on pushing through its proposal for foreign direct investment (FDI) in retail. It says the move would create jobs and curb inflation besides creating infrastructure which the agriculture sector lacks. However, the bigger motive is to fight the overwhelming perception that the government is caught in a policy paralysis and is unable to take decisions. The entire opposition is against the move. The argument here is entry of big global players such as Walmart, Carrefour and Cesco in the retail sector would jeopardise the livelihood of millions of small retail traders and more than four million people would be jobless. Besides, the fledgling domestic organised sector would take a hit since global players, loaded with money, are known to resort to unfair practices to kill competition. The governments argument that its a policy decision and the states are free not to allow foreign players to open shop as laws relating to opening shops and buying grain from farm-

Akshaya Mishra Nov 30, 2011

...................................................................... Struggling for numbers, the government cannot allow voting in Parliament. The opposition would not let the chance slip. .................................................................... ers are under the purview of the states has not cut ice with the opponents. The BJP wants a complete rollback. The Left wants it that way too. UPA ally Trinamool Congress and the DMK are opposed to the move. And there are dissenting voices within the Congress as well. All parties want a discussion on the issue. But here technicalities kick in. BJP, which has moved an adjournment motion on the issue, wants the discussion to be followed by voting. With even allies opposed to the FDI proposal, the Congress can ill-afford a voting. With numbers not on its side it could end up on the losing side. Its almost a vote of no-confidence. No side would climb down. The result: No business in Parliament for seven days.

CPIs Gurudas Dasgupta said, The matter should be reconsidered by the government. They have to withdraw the FDI decision and then we will discuss. We want a discussion in Parliament on our adjournment motion on FDI in retail. Why is government running away from a discussion followed by a vote in the House? said leader of Opposition in Lok Sabha, Sushma Swaraj. The resolution submitted for adjournment motion is non-negotiable. The government should either withdraw FDI in retail or agree to an adjournment motion to discuss the matter, senior BJP leader SS Ahluwalia said. Of course, the government cannot allow that. It cannot afford to be seen ruling without any moral authority. It has the option to back out for now and take up the issue later. But it would amount to loss of face. Moreover, there is no guarantee that the other important and equally contentious bills would not face similar resistance when they come for discussion. Finance Minister Pranab Mukherjee and Prime Minister Manmohan Singh are not keen on going slow. On Tuesday, Singh, speaking at the Youth Congress convention, put up a stout defence for reform in the retail sector.

We have not taken this decision in any haste but after a lot of consideration. It is our firm conviction that the decision will benefit our country It will get us modern technology, not let crops get damaged, get farmers good prices and bridge gaps, he said, hinting that he is ready to fight it out. That Congress chief Sonia Gandhi has not intervened in the matter so far is clear indication that the party is keen on fighting it out. Efforts are afoot already to bring in the numbers. The DMK, though opposed to the governments proposal, has already announced that it would back the UPA if theres a voting on the issue. If the Congress manages to convince the Trinamool Congress to shed its hard line position, it could risk a voting. Getting Congress members opposed to the bill would not be a big problem for the party. The government could dilute its present proposal with retailer-friendly changes to allay fears in the political class as an option. It might increase the limit for procurement of goods from small and medium enterprises by big retailers from the present 30 percent to 40 percent. However, it is more of a battle for the numbers now than for the retail sector.

The Congress is hell-bent on pushing through its proposal for foreign direct investment (FDI) in retail. PTI

................................................................................... will the traditional mom-and-pop stores wither away in the face of competition? The chances are unlikely, because, at the end of the day, those that evolve with the changing market will surviveCiam endus rehenim fugitat lique rehent eaquodis repudan dandunt ionsequ iasitatiam ......................................................... On late Thursday evening, the government announced that it would allow 51 percent foreign direct investment (FDI) in the multi-brand retail segment and raise the cap on foreign investment in single-brand retailing to 100 percent from 51 percent.

fter years of dithering, the government finally eased up on foreign investment rules in Indias booming retail sector.

Indias retail market is worth an estimated $450 billion, with more than 90 percent accounted for by millions of mom-and-pop (kirana) stores. Organised retail makes up about 5-10 percent of the market. So who gains? The biggest gainers will, obviously, be local organised retail players as well as multinationals whove been eyeing a foothold in this market for a long while now. Not surprisingly, in the equity markets, retail stocksPantaloons Retail, Shoppers Stop and Koutons Retailended between 6 percent and 12 percent higher at the end of trading yesterday, as expectations mounted that the FDI proposal would be approved.

FDI in retail:
Why it works for everyone

FP Editors Nov 25, 2011

Multi-brand retail companies are those that sell a variety of products under different brands, like supermarket and chain store operators. Examples of such companies include Wal-Mart and Frances Carrefour. Single-brand retail are companies that sell products under one brand, such as Nike or Levis. As expected, the announcement cheered the organised retail industry; various company officials had been urging the government for a long time to liberalise investment norms in the sector.

The easing of FDI norms will come a big relief to these companies because the fact is that most of them are actually struggling with different financial problems and will be more than happy to ink a deal with a partner who can bring in some badly-needed cash. For instance, the Future group, one of Indias bigger organised retail players and owner of the Big Bazaar chain of outlets, has debt of about Rs 4,300 crore, according to The Economic Times, and is scrambling for ways to reduce that debt. Tie-ups will help improve investments in in-

frastructure, especially cold storage facilities, according to analysts quoted by Business Standard. In fact, these arrangements could also contribute to lower food inflation in a country in which up to 40 percent of fresh produce is wasted because of poor storage systems. The decision to allow FDI in multi-brand retail is expected to be announced formally in Parliament today, and is expected to include riders such as a minimum investment of $100 million to start retail operations in the country; 50 percent of that will have to be invested in back-end operations such as food-processing units and warehouses and supply chains as well. There could also be restrictions on where retailers can open stores companies may only be allowed to open stores in cities with a population of more than one million. According to experts, none of these present any significant hurdle for international retailers, who, struggling with saturating developed markets, are on the hunt for higher growth in emerging markets such as India, China, Russia and Brazil. More choices for consumers Multi-national companies such as Wal-Mart, Carrefour, Metro and Tesco are already present in India, but only in wholesale operations. That means they can only sell to bulk buyers such as hotels and other retailers. Dont expect them to come sprinting into the retail segment in a hurry. Most experts believe that it could take up to 12 months before a foreign retail giant actually opens an outlet in the Indian market, given the investments needed in the supply chain.

Plus, as The Economic Times notes, retail trade is a state subject, which means all regulatory approvals and clearances have to be provided by state governments. Not all of them will be in a mood to oblige, considering there is still stiff political opposition to 100 percent FDI. Of course, there will also be the usual cries of foreigners will take away market shareand jobsfrom Indian companies. That opposition might delay some plans for foreign companies. The question to ask here is, will the traditional mom-and-pop stores wither away in the face of competition? The chances are unlikely, because, at the end of the day, those that evolve with the changing market will survive. In addition, it still remains to be seen whether Indians will actually shop at Wal-Mart and desert their local around-the-corner stores, which offer facilities of home deliveries and extended credit periods to regular customers. As Firstpost pointed out on Thursday, we really shouldnt worry too much about the kirana shops. They are good enough to take care of themselves. Just allow investments to come in they would in all probability make neighbourhood shops still smarter and more efficient, the article noted. So, hello Wal-Mart, Carrefour. Bring it on.

FDI fineprint: Easing FDI

problems plaguing retail

Shishir Asthana Nov 25, 2011

doesnt ease

s the market rejoicing the cabinet approval for retail FDI (foreign direct investment) a bit too soon? The fine print of the proposal suggests so. The Cabinet on Thursday approved 51 percent FDI by multi-brand retail companies and raised the limit for single-brand retailers to 100 percent from 51 percent. Narayanan Ramaswamy, executive director, KPMG India, was quoted by Bloomberg as saying that the the moves offered one of the biggest opportunities in the world right now. A $450 billion retail market has been opened for foreign investment. Retail stocks have shot through the roof after the proposals received cabinet approval. Pantaloon surged 16 percent higher, while Vishal Retail hit the upper circuit of 20 percent at Rs

22.70. Trent is trading 9 percent higher at Rs 1,064. Even single-brand retailers like Koutons and Provogue have gained. However, there is very little reason for singlebrand stocks to go up. First of all, they have not been able to garner any FDI even when the limit ..................................................................................... The move will benefit farmers as they will get a benefit of better realisations. The few retail chains that sell farm products, no doubt, sell their products at lower- than-market prices ..................................................................................... was 51 percent. Secondly, with 100 percent FDI in the sector, these companies will be faced with increased competition as foreign brands will now be setting up outlets next to theirs. As for multi-brand retailers, a number of issues

still remain to be tackled. The first is that individual state governments have the power to veto foreign retailers. Along with the opposition, even some members of the ruling Congress have opposed the move. That leaves the market open for investment in only a few states. The second problem is the issue of the 51 percent stake in these companies. Currently, most of these companies have stretched their finances. Take Pantaloon for example, interest outgo accounts for over 60 percent of its operating profit, leaving very little free cash for growth. A strategic investor (read a big retailer) will be unlikely to invest in such a company because his money will probably be used for paying off excess debt without creating any new capacities. Also, they will be more willing to invest 51 percent and take control of the operations. Very few Indian promoters, in contrast, will be willing to relinquish management control. Pantaloon, in fact, has a poor track record of managing joint ventures. Anand Sharma, minister of commerce and industry, in his press conference said that the move will benefit farmers as they will get a benefit of better realisations. The few retail chains that sell farm products, no doubt, sell

their products at lower- than-market prices; however, their procurement strategies are even more aggressive than those employed by traders of the Agriculture Produce Market Committee (APMC). So its extremely unlikely that farmers will actually benefit from the FDI investments. The only way the huge gap between the price at the farm gate and at the shop can be bridged is by allowing the farmer to sell his own produce. Currently, they have to pay a deposit of Rs 1 crore, just to get a licence to sell in the bigger APMCs. But agriculture traders will ensure that farmers never get the opportunity to sell on their own. In the past, some stores of Reliance Retail were, in fact, ransacked by traders, forcing the company to shelve their expansion plans in certain states. Players who, however, are just setting up their retail chains or are in the nascent stage of growth like Bharti will benefit from this FDI move. In the case of current players, they can at best hope to rope in a private equity player to pick up a sizeable chunk of their equity.

Chapter: 1

The verdict

FDI in retail: Why the politicians are illogical, and have got it wrong
FP Editors Nov 28, 2011

o much has been written and said about allowing 51 percent foreign direct investment in multi-brand retailing. Over the weekend, politicians have been frothing at the mouth over the job losses and destruction to the local retail industry the central governments decision will entail. Frankly, those arguments seem more driven by political expediency than any economic logic. According to a PTI report, 28 out of 53 cities are expected to place hurdles to foreign retailers setting up shop. Thats because these cities are located in 11 states ruled by political parties opposed to the decision to ease FDI rules in multibrand retail. ........................................................................ We have every kind of foreign retailer in the country. Consumers can choose to have a Pepsi or a Thums Up, a coffee from Barista or Cafe Coffee Day or ice cream from Amul or Baskin Robbins. No foreign company has managed to come into India and wipe out the entire competition. ........................................................................ Tamil Nadu J Jayalalitha has already announced that she will not allow foreign retailers into the state; so have Uttar Pradeshs Mayawati and Bihars Nitish Kumar. The cities in which global giants like Wal-Mart and Carrefour might not be allowed entry include Bangalore, Kolkata, Ahmedabad, Patna, Allahabad and Bhopal. While the central government gave the nod to the FDI proposal, retail trade is still a state subject and, therefore, the final authority to grant licenses and clearances still lies with state governments. The biggest argument against liberalisation of the multi-brand sector is that there will be a

wholescale loss of jobs and foreign retailers will charge in and crush the business out of the local neighbourhood, or kirana, stores. A must-read opinion piece in The Economic Times by Rama Bijapurkar offers some interesting counter-arguments. One, given the condition that foreign retailers can only open outlets in cities with a population of one million or more, more than 75 percent of Indias eight million consumer-goods stocking kiranas will be protected from the foreign invasion, since they are located in rural India.

Two, for those claiming an adverse impact on the growth of the local industry (more than 90 percent of the industry is accounted for by kirana stores), the fact is kirana stores are already not participating in the growth offered in newer settlements like Gurgaon or Powai, because without their advantage of historically-priced real estate, they are not viable. Three, the concerns about loss of jobs in the sector seem overblown. The truth is, a younger

generation of better-educated Indians are increasingly looking to branch out of their familys retail business and are themselves looking to exit sitting in the shop, just as farmerss children are exiting farming. Four, most hypermarkets and supermarkets typically cater to upper middle-class consumers. Foreign retail outlets are likely to open up a new market segment, not take away custom from existing ones. Firstpost also recently argued that there really is no reason to pity the kirana store, because they are pretty capable of taking care of themselves. Indeed, most marketing experts acknowledge that they offer some advantages that simply cannot be matched by the best and the biggest of foreign giants, including the provision of door-to-door delivery, extending credit to regular customers and delivering even the smallest of orders. What about consumers? In addition, in this whole debate of kirana stores versus foreign retailers, why does no one seem to care about what Indian consumers want? Consumers have the right to choose if they want to visit Wal-Mart or the local kirana store. Chances are, theyll patronise both. The point is, they, not politicians and producers, should decide who they want to buy their groceries from. The local retail industry is too well established to be wiped out by foreigners. In fact, if anything, it should make the sector stronger.

Today, apart from the foreign multi-brand retailer, we have every kind of foreign retailer in the country. Consumers can choose to have a Pepsi or a Thums Up, a coffee from Barista or Cafe Coffee Day or ice cream from Amul or Baskin Robbins. No foreign company has managed to come into India and wipe out the entire competition. In retail stores, youll find products from Nestle and Hindustan Unilever sitting besides those from Godrej Consumer Products and Dabur. Competition forces companies to evolve and adapt to consumer tastes. Those that learn to do that survive, whether they are local or foreign. If Indians find they dont like shopping at Wal-Mart, they wont. And if were afraid that suppliers might be squeezed by giant foreign retailers, we need to create rules to prevent that from happening, not stop foreigners entering the market altogether. Two decades ago, we heard the same cries against liberalisation of the Indian economy. Well, 20 years on, most of Indian industry has survived and even thrived. In fact, our IT industry, one of the most exposed to global competition, ranks among the best in the world. Certainly, a few industries have fallen by the wayside but those were the ones that failed to evolve with the changing times. The hue and cry about foreign retailers is more reflective of a political mindset resistant to change, and unbecoming of a nation aspiring to become an economic superpower. So, let the foreigners come in. And may the best local and foreign retailers win.

Dont pity the

kirana guy,

he knows how fight back

Akshaya Mishra Nov 24, 2011

ever underestimate the resilience of the kirana shop owner. Rest assured, competition wont kill him.

The hullabaloo over 51 percent FDI in multibrand retail is a bit off-focus. The argument is that it would bring global players with deep pockets such as Walmart, Carrefour and Tesco into the picture and subsequently drive the neighbourhood mom-and-pop stores out of the market. The apprehension was similar, though far less intense, when the country went for 51 percent FDI in single-brand retail in 2006. The local players there are more than 14 million of different shapes and sizes have not gone out market; they have instead, turned smarter and better. If FDI in retail sector is allowed, small traders will lose their jobs as their products or services will not be able to compete with foreign traders, said senior BJP leader Murli Manohar Joshi. Both the contentions dont wash. Despite the emergence of domestic organised

retail activity kirana shops at street corners still account for 90 percent of $590 billion retail trade in the country. And theres no possibility that they could be replaced easily. ................................................................................... It is not easy to compete to with the kirana stores. Just because you are a big guy with a lot of money, it doesnt mean that you can compete. Kirana stores have a lot of benefits that established retailers dont have ..................................................................................... Despite the rise of the modern trade in the country, the traditional kirana store too continues to be strong. The main factors driving this strength are the convenience of access, availability of home delivery, and trusted relationships between the shopper and local grocer, says the latest Nielsen Shopper Trend India Report. On whether they could stand in competition with foreign traders, it could be said that they face the same threat from the organised retail sector in the country and so far, they have managed to hold their own, remarkably well.

According to the Nielsen study, shoppers also perceive that they get better price value from their local grocer. No competition can take away the advantages kirana stores enjoy. Proximity is one of them. Where do you rush for a shaving blade which you need fast to get ready for office? Where do you run to when you realise that you need a packet of milk immediately? To the kirana store round the corner, of course. Theres no standing in the queue and no need to carry the money immediately too. The air of informality is something special to our kirana stores. The manufactured suaveness of the supermarket cannot just compete with it. Customer loyalty is something the kirana store can always bank on the small customer base and scope for personal interaction ensures that. Supermarkets will never have that unique benefit. The kirana stores have a lot of advantages visa-vis the established firms. From the convenience standpoint, kirana stores are not going away at all, actually. To the extent that they

help you take care of the daily needs, thats an opportunity that will still be there for the kirana store, Rajiv Lal, Stanley Roth, Senior Professor of Retailing at Harvard Business School, told DNA. It is not easy to compete to with the kirana stores. Just because you are a big guy with a lot of money, it doesnt mean that you can compete. Kirana stores have a lot of benefits that established retailers dont have first of all, location. What rents do they pay versus what established companies have to pay? Employees, same story, he added. And they are keeping up with the times and innovating too. Theres quick home delivery (the amount of purchase is not important here), you can place your order on the phone and yes, the shop owner is trying to make the shelves look presentable too. So dont worry about the kirana shops. They are good enough to take care of themselves. Just allow investments to come in they would in all probablity make neighbourhood shops still smarter and more efficient.

JP leader Uma Bharti has responded to the proposal to permit FDI in multibrand retail stores with her characteristic subtlety of expression. She will, she says, personally set fire to any Wal-Mart store that may set up shop anywhere in India. Her party says it opposes multinational retail giants because they will suck up the business of small, neighbourhood stores and create unemployment. At the other end of the political spectrum, the Left parties too have opposed the FDI in retail

For instance, the BJPs criticism that the WalMarts of the world will suck up the business of kirana stores is, as Firstpost has argued, an exaggerated fear. It brings to mind the campaign against KFC in the late 1990s by the anti-globalisation leader from Karnataka, MD Nanjundaswamy, which too fed on the swadeshi sentiment momentarily, but has since been proved wrong. The advent of multinational fast-food joints hasnt exactly wiped out the famed Udupi restaurants, as had been feared.

Uma Bhartis demonisation of Wal-Mart is self-serving

............................................................................... Sure, Wal-Mart is no corporate angel. But the opposition by the BJP and the Left to its entry reflects an anachronistic political posturing. ............................................................................. on ideological grounds. Wal-Mart is of course a lightning rod for criticism and ideological bashing in many parts of the world, not least in the country of its origin, the US. Much of this criticism relates to its business and labour practices and wage policy, and on at least a few counts, the criticism is justified. Uma Bharti, president of India's Bharatiya Janashakti Party (BJSP), addresses a public rally . Reuters But in equal measure, some of the grounds on which Indian political leaders criticise WalMart dont apply in an Indian context or if they do, the criticism is entirely without merit, and serves only to keep the parties own gravy trains running. In fact, a 2008 study by Russell Sobel and Andrea Dean at West Virginia University established that contrary to popular belief, Wal-Mart had not caused any significant harm to the traditional, small mom and pop business sector. Even if, as happened in some cases, the entry of a specific Wal-Mart store caused some individual, small mom-and-pop businesses to fail, these failures, the researchers concluded, were completely offset by the entry of other new small businesses elsewhere in the economy. On this count, the BJPs opposition appears only calculated to protect its own constituency of traders. Likewise, the advent of multi-brand retail outlets will, if anything, open up jobs in the service
Venky Vembu Nov 25, 2011

sector and help facilitate a cold-storage chain that will benefit the farm sector. Similarly, the Left parties opposition to the entry of the Wal-Marts of the world springs principally from the fact that Wal-Mart has a policy of not permitting labour unions. (That policy has, of course, been violated in China, where workers are unionised under the official and far from independent labour union, as one of the conditions for Wal-Mart to operate in that country.) But the Left has already lost that battle over unions in the IT sector in India, which perhaps accounts for the sectors good showing. While labour unions may have served a social purpose in an earlier time when workplaces were a lot more exploitative, given todays labour dynamics where skills are in enormous shortage and skilled workers can vote with their feet the demand for unionisation is in a bear market. Having missed its gravy train, the Left is clutching at straws on this one.

Its one thing to argue in favour of protecting ones interests when one permits the Wal-Marts of the world to come in. But the grounds on which the BJP and the Left have opposed the proposal in its entirety and in the BJPs case, invoking incendiary language is blatantly selfserving. Their language of demonisation of the WalMarts of the world is an anachronism that has long outlived its political utility.

Why the

kirana dukan
doesnt care about

Big Brother

Anant Rangaswami Nov 29, 2011

ets face it: Big Brother as far as the kirana is concerned has been here for some time now, and is here to stay. Forget, for the moment, the nuance of who owns the organised retail outlets; they already exist and do not bother the kirana a whit. To understand why, I thought Id take a look at where my neighbours and I buy our daily requirements from. I stay on Mount Mary Road, in Bandra, Mumbai, about halfway up a hill. Bang opposite the building, Vindhyachal, is the archetypical kirana shop, about 30-40 square feet. Its here that all of us buy immediate needs bread, butter, eggs, biscuits, milk, tea, coffee, water, soda, beverages, juices, dahi, soap, shampoo, detergents, a ball-point pen, pencils, batteries, candles, etc. You get the drift. All the day-to-day stuff. You get condoms, too, of course. The shop is open from about 6.30 am to midnight, which is wonderfully convenient if, as

I often do, you run out of cigarettes or need a few sodas and Cokes at short notice when unexpected guests drop in. Or packs of playing cards if the old ones get sticky halfway through the bridge session. ................................................................................... Alcohol? Jude Wines is on my speed dial and delivers within 20 minutes. Oh, and they can supply Perfect ice and cigarettes as well. Theres no real need for me to go to organised retail. With the solutions that are available, Ive got a kirana across the road that works in all the hours that matter to me. .................................................................................. And you dont even have to leave the house. You call the watchman on the intercom, he strolls across the road, picks up the requisites, hands it over to the liftman who rings your doorbell. What about the payment, you ask? Thats the

magic of the kirana, the extraordinary understanding of consumer needs and wants. You get credit. Some square up the next time they go down, some do it once a week (every Sunday is my pattern), some once a month. My neighbourhood kirana doesnt stock pulses, rice, imported toiletries, vegetables, and so on. For such needs, we can walk down to Patels, which is about 500 metres from the building. Theyve got everything that one might need for daily consumption that my kirana doesnt stock . Or, of course, if Im super organised, we can call and have them delivered. If one doesnt want to pay the premium for the fruit and vegetables at Patels, make a longer trudge to Pali market. Lazy? Call the vendors they all have mobile phones and they all deliver. Medicines? Walk down to Asian Chemist. Or call them, they deliver, too. Alcohol? Jude Wines is on my speed dial and delivers within 20 minutes. Oh, and they can supply Perfect ice and cigarettes as well. Theres no real need for me to go to organised retail. With the solutions that are available, Ive got a kirana across the road that works in all the hours that matter to me, Ive got a medical store, an upmarket kirana in Patels and an alcohol shop accessible on phone and home delivery.

Organised retail in the sense that it is being spoken about today promises bigger and better and possibly cheaper. But to truly benefit from these megastores, its buying in higher volumes that will matter. Buy two of something, get one free. Buy a case of a beverage, get 3 bottles free, and so on. But for all those who live in Mumbai or, indeed, in any large city, where is the space at home to store all the stuff youve got to benefit from the deals? As importantly, all the shopping Ive described can be done by me without having to travel halfway across town. There are two attendant costs to this the cost of the travel and the cost of the time taken. Of course, one will go to the mega store every once in a while and spend money one doesnt have on things one doesnt need. But I cant see how Ill manage without my kirana-across-theroad, Patels, Asian Chemist and Jude. Theyll all survive. Theyll prosper and flourish and no amount of FDI will change that.

Chapter: 2
sides of the debate:

GOVERNMENT

nfazed by a storm of protests over allowing 51 per cent FDI in multi-brand retail, the Centre today said the new policy is distinct and different and interest of small retailers has been taken into consideration. The FDI policy is distinct and different and has the Indian signature, Commerce and Industry Minister Anand Sharma told reporters in Chennai. The interest and sensitivities of small retailers have been taken into consideration and they are part of the policy embrace, he said when asked whether the government would take steps to allay fears over the measure, which has drawn sharp reactions from the political parties and retailers. Sharma said the political parties would certainly realise the benefits of the governments bold move, and added that such opposition was common. He recalled that previous Congress governments in the 80s and 90s, led by the late

10 days before it reached a committee of secretaries, after intense consultations with states, retailers, industries and farm associations and other stake-holders. ............................................................................... Holding that only 53 Indian cities with a population of 10 lakh and over would attract FDI proposals by virtue of the policy provisions, he assured that small retailers would not only coexist with big players, but also grow by 13 per cent in the coming years. PTI Nov 26, 2011 ..................................................................................... The government came under a sharp attack inside and outside Parliament over its decision to open the multi-brand retail to foreign investment. The criticism came not only from the Opposition but also from Trinamool Congress, a key UPA ally at the Centre. Sharma insisted that the decision on FDI was not an overnight policy and said no policy roll-

FDI in retail

distinct
and

different:

Sharma
Rajiv Gandhi and late P V Narasimha Rao had gone ahead with reforms in IT and communication and economy, only to reap benefits now. The minister said the government has not rushed the FDI policy and it took one year and out would be without opposition and criticism. He added that a sincere effort had been put in to take on board concerns of all stakeholders. Claiming that the decision would help farmers and consumers alike, he said peasants were not getting remunerative price for their produce.

The policy envisages to bring down post-harvest losses and aims to create better rural infrastructure like cold storages, Sharma said. This was an enabling policy, wherein the state government can take a call on its implementation and he said states such as Punjab, Haryana and Maharashtra had welcomed it and expressed the hope that other states, including those in the South, are favourable towards it. In respect of proposals involving more than 51 per cent, 30 per cent of the sourcing would have to be done from village and cottage industries as well as small and medium enterprises, so as to benefit this sector, he said. Holding that only 53 Indian cities with a population of 10 lakh and over would attract FDI proposals by virtue of the policy provisions, he assured that small retailers would not only coexist with big players, but also grow by 13 per cent in the coming years. Further, every investor had to work with Indian people and within

the ambit of the strong Indian laws, including labour laws, Sharma assured adding that corner stores would be protected. No one can sell products at predatory prices, he said. Sharma expressed confidence that the FDI policy will result in billions of dollars of investment, but declined to speculate on a specific figure. On consensus in the Cabinet over the FDI policy, he declined to respond to media reports but said there would be discussions and debate.

Govt says FDI in retail will

Out on a limb:

immensely benefit farmers

FP Editors Nov 25, 2011

ommerce and Industry Minister Anand Sharma formally announced the new foreign direct investment policy norms for the multi-brand retail industry and provided the governments reasons on why it has decided to relax the rules. Sharma said the move to allow 51 percent FDI in multi-brand retail and raise the limit for single-brand retail to 100 percent from 51 percent would immensely help Indian farmers and create jobs in the agricultural and food-processing industry. Presenting the arguments for allowing more investments into the retail industry, the minister said India currently did not have adequate infrastructure or value chains in place to support the agricultural sector. Despite the fact that India is one of the largest producers of farm produce in the world, it loses 40-50 percent of that output after harvest due to poor storage facilities, Sharma said. In fact, up to 80 percent of the limited cold storage facilities are used to

store potatoes, he added. ..................................................................................... Presenting the arguments for allowing more investments into the retail industry, Commerce and Industry Minister Anand Sharma said India currently did not have adequate infrastructure or value chains in place to support the agricultural sector. ..................................................................................... Even farmers are getting a raw deal under the current agricultural system, he pointed out. Farmers only received one-third of the purchase price paid by consumers for food grains and in the case of fruits, it was even lower at 12-15 percent of the purchase price, he said. The minister also announced the conditions under which FDI would be allowed: Fifty percent of the investment has to be made in rural infrastructure, including cold storage facilities.

Thirty percent of the entire sourcing has to be made from small and medium enterprises. Multi-brand retail stores, funded by foreign giants, can be opened only in cities with a population of one million and above. These conditions were already known by the markets and came as no surprise.

Sharma also said he expected foreign investments in the retail sector to create 4-5 million jobs in the agricultural and food-processing/industrial sector over the next three years. He also expected enormous amounts of FDI to pour in because of the changes to the sector regulations.

Chapter: 3
sides of the debate:

PUBLIC

Reader debate:

bane or boon?
FP Editors Nov 28, 2011

Is FDI in retail

he governments decision to open up Foreign Direct Investment (FDI) in the retail sector has created an uproar of opposition in the political arena. However there seems to be a greater diversity of opinion among our readers at least. On Sunday 27 November, Firstpost published an article titled, Manmohan Singhs big retail risk which has received a number of comments arguing both for and against FDI in the retail sector. We found these comments extremely interesting and thought provoking in terms of the points they raised, and have therefore decided to publish a cross section of them here. Some readers such as Arul Prakash feel that the measures will put farmers at a disadvantage and also result in a situation where consumers are not given the freshest produce. He writes, Once they come the farmers who now have several middleman to sell their goods..will have only a few retail stores to sell in future. Usually that means price he gets will not be as competitive as it is today. Second! the same supermarkets may not actually give the best products grown

in India to Indians..third! they can allter the food habits of the nation. Instead of eating fresh foods we will all be eating canned foods soon! ..................................................................................... Good Moveby Government..Every good thing has opposition in this world before the actual fools start to see the benefits of it.same happened when India was opened to foreign companies in 1992..now see where is INDIA..at least the world recognize us todayWait n Watch..INDIA ..................................................................................... Guest, an anonymous commenter on the article also feels that FDI will be more bane than boon. He says, Manmohan Singh and his team may believe that Walmart, Carrefour etc. are coming to India to uplift the condition of agricultural sector and will improve supply chain efficiency. We believe they are coming for sheer profit motives and if that means squeezing the billion+ Indians, selling Chinese goods, killing

indigeneous ventures - they will do that. Todays independent entreprenuer and businessmen will become their salaried employees. On the other side of the debate, Shiva Kakkar does not believe that the entry of foreign players such as Walmart will necessarily kill off the kirana stores, and says that Indias bad supply chain management could do with some propping up. He says, Opening up of foreign store does guarantee one thing stiffer competition and aggressive pricing and better quality of service. But that doesnt mean that Kirana store guys would die of hunger. They have their own clientele and I have seen that when competition stiffens they tend to adapt to it. I come from a tier 2 city. When Reliance and Big Bazaar first entered, there was the same opposition but after that I have seen many small Kirana store owners turn their stores into departmental format and they seem to have maintained their clientele. Secondly, I have noted that they tend to have a better hold of tastes of the local public, for eg. which variety of rice or wheat sells more than others etc. The one good thing was that it was only after the onslaught of retail chains, the kirana guys started valuing customers. I have seen men who wouldnt give a damn if you stomped out of their shops change their attitude and give better service. Still, the return policies and complaints department happens to be a problematic affair for local stores. Truly speaking, I am thrilled how foreign retailers would handle the Indian retail scenario. Secondly, people arguing on supply lines being hijacked by Walmart need to see the footage rolling on Rice and Wheat rotting in rains that was flashing on every channel barely a month ago. Had efficient supply chain management been there, thousands of tonnes of those grains could have been saved. Accept it - India is BAD at supply chain management, be it PDS or private. We need expertise of foreign retailers. Maybe, it has a lesson or two for us too.

Meanwhile another reader, Catamaran says that the government decision is a brave one, and the opposition to the move should be ignored in the interest of Indias future. In his own words, Good Moveby Government.. Every good thing has opposition in this world before the actual fools start to see the benefits of it.same happened when India was opened to foreign companies in 1992..now see where is INDIA..at least the world recognize us today Wait n Watch..INDIA will do much well by these kind of brave decisions.. Yet other readers such as Sai, see both the positives and negatives of the FDI move. On the positive side he cites Infrastructure buildup, more cold storages, less food rotting, for urbans and semi urbans its very good in terms of creating new jobs for those who wanted to work but not finding it and also encourage for part time jobs, introduction of new brands, its will be only allowed to 50-60 cities i.e only 20% of total population, 80% people still go for kiranas However he sees negatives too. Walmart especially has very bad track record in handling its own employees, developed countries US and Euros have negative statement that Multi Brand retails cut the jobs and give less returns to the farmers from what they were getting before they enter there market, might hamper Kiranas where they will open store, may in coming years will lead to cane foods in India and at higher prices so will lead to higher inflation. The biggest concern is that may change peoples mentality, India is country where people saves more, but after these multi brands enter, people will spent more and save less(as we all know how we behave when we enter a shopping mall).. thats the reason why US and Euro went through 2008 melt down and still wont be able to recover and might in 2-3 years will be declared bankrupts.

Chapter: 4
sides of the debate:

INDUSTRY

India Inc appeals

political parties:
support FDI in retail
PTI Nov 28, 2011

to

ew Delhi: India Inc today said political parties should reach a consensus on the governments decision to open the multi-brand sector to foreign investment. We will request political parties to support the governments decision as it would help SMEs There should be a minimum sort of an agreement in such areas (FDI in multi-brand retail), CII Director General Chandrajit Banerjee told reporters. .................................................................................... India Inc today said political parties should reach a consensus on the governments decision to open the multi-brand sector to foreign investment. .................................................................................... Making a similar appeal, FICCI Secretary General Rajiv Kumar said this move would have a positive impact on the small and medium enterprises (SMEs) and on employment. Indian SMEs can expect additional orders of $60 billion annually from large retailers. This will be a fillip to SMEs, he said.

Chairman of CII National Committee on Retail and CEO of Aditya Birla Retail, Thomas Varghese said that state governments should look at the long-term benefits. I would urge (state) governments not to look at this issue from a narrow prism, but to look at it from the point of view of benefiting consumers, SMEs and employment, he said. He expressed hope that progressive states which are concerned about consumers and inflation, will give licenses to retailers. At the end of the day, the framework of the Indian Constitution provides each state for taking its own decision, he added. Assocham too supported the government, stating FDI in retail would create lakhs of new jobs and help reduce inflation. Anand Sharma, Indias commerce minister, on his part sought to reach out to opposition parties by writing a letter to them and appealed to them to rise above petty partisanship on the issue.

The entire Opposition, barring BJP ally Akali Dal, put the blame on the government for Parliaments disruption saying they were not not consulted on such a vital issue. The unity among the Opposition has also surprised the government. Notices for an adjournment motion on the issue, under consideration of Speaker Meira Kumar, were tabled by leaders of several parties in the Lok Sabha. Similar notices were also tabled in the Rajya Sabha.

Leader of the Opposition Sushma Swaraj told a press conference, Scrap the decision by the night. Parliament can function tomorrow. JD(U) leader Sharad Yadav said the Congress took the FDI deliberately to sabotage Parliament at a time when it was scheduled to discuss crucial issues like price rise and black money. Yadav, who is NDA convener and BJP spokesperson Shahnawaz Hussain, said the question of allowing Parliament to function does not not arise till government reverses the decision. The Opposition has said that the decision would sound the death knell for millions of small traders and cause huge unemployment in the rural areas.

ew Delhi: India Inc today appeared to be divided on allowing FDI in multibrand retail, an issue which has rocked Parliament and drawn stiff opposition from UPA ally Trinamool Congress.

While FICCI extended an all-out support to the government, CII recommended a calibrated approach for introducing FDI in the retail sector in terms of the percentage and minimum capitalisation requirements. Addressing a press conference, FICCI Secretary General Rajiv Kumar said opening of the retail sector would create big employment opportuni-

CII, on the other hand, said while it strongly supports the introduction of FDI in multi-brand retail trading, it recommends a calibrated approach for introducing FDI in the retail sector in terms of the percentage and minimum capitalisation requirements. Kumar said associations which are raising concerns that global retail chains like Walmart and Tesco would wipe out mom-and-pop stores are following a politically motivated argument. Some traders associations are arguing that about 40 million employed in this sector would loose their earnings because of opening of big

divided over FDI in

India Inc

multi-brand retail
.................................................................... While FICCI extended an all-out support to the government, CII recommended a calibrated approach for introducing FDI in the retail sector. ....................................................................
PTI Nov 28, 2011

ties in the country. Without naming, he said those industry associations that are opposing the foreign direct investment in multi-brand retail have a vested interest. This is just a fear that has been created for some vested interest. FDI in retail will be a game-changer like telecom. I see only positive impact on employment, he said.

foreign retail stores. In fact, foreign stores will generate employment and that will be higher quality employment. Small stores would also increase their employment to compete with the big retailers, he said.

Chapter: 5
sides of the debate:

OPPOSITION

anti-people
FP Staff Nov 25, 2011

FDI in retail: Opposition, allies term it

ollowing governments nod to Foreign Direct Investments (FDIs) in the retail sector, the Opposition and allies within the Congress-led UPA have slammed the governments move as anti-people.

told reporters outside Parliament House today. Sharma had insisted that despite being one of the largest producers of farm produce in the world, India loses 40-50 percent of that output after harvest due to poor storage facilities. In fact, up to 80 percent of the limited cold storage facilities are used to store potatoes, he added.

Anand Sharma, Cabinet Minister for Commerce and Industry, while speaking to the media on the reasons to allow FDI in retail said the move Presenting the arguments for allowing more will immensely help Indian farmers and creinvestments into the retail industry, Sharma ate jobs in the agricultural and food-processing had said India currently did not have adequate industry. Countering Sharmas claim the BJP infrastructure or value chains in place to suptoday said that the proposed move will create port the agricultural sector. Government has unemployment in the country and adversely affect thousands of maintained that farmers will get higher remunertraders in the sector. ............................................................................... ation and the FDI will While Anand Sharma is confident that allowhelp developing logistics FDI is not required ing FDI in retail will help develop infrastructure and cold storage chains in retail sector. Cold and benefit the farming sector, the opposition has in the country. Rubstorage facility is not unanimously termed the move an anti-people bishing governments rocket science that move that might increase unemployment. you need FDI for it, claims, Javadekar said, ............................................................................... On the contrary it will BJP spokesperson Prakash Javdekar create unemployment

and adversely affect thousands of traders in the sector. We are against FDI in retail sector and we will oppose it. BJP leader SS Ahluwalia said, Two Standing Committees have given reports against the FDI in retail sector. But still the government went ahead with FDI. It must be withdrawn. The Left also slammed the move and criticised the government for not discussing the issue in Parliament. It is unprecedented. When Parliament is in session, a major decision was taken outside the House. It has never happened, CPI(M) leader Sitaram Yechury told reporters outside Parliament House. We will not discuss the FDI issue in Parliament unless government revokes the decision. We will oppose it in the House and outside also, he said. Attacking Mamata Banerjee-led Trinamool Congress contradictory stand, Yechury said, On one hand, they are allowing the Cabinet to clear the FDI proposal and on the other they are protesting the decision in the House. Sharma has contended that he expected foreign investments in the retail sector to create 4-5 million jobs in the agricultural and food-processing/industrial sectors over the next three years. He also expected enormous amounts of FDI to pour in because of the changes to the sector regulations. Dubbing the decision as anti-people, he said it would render many people jobless and increase unemployment. CPI National Secretary D Raja termed the move as most unwise particularly when Parliament was in session and said it would lead to the displacement of millions of people from jobs, adversely affect the services sector and seriously harm the small and marginal farmers.

Corporate Affairs Minister Veerappa Moily who was opposed to the move until last evening, today said foreign investment in multi-brand retail will help improve supply and tame inflation. It (FDI in multi-brand retail) will help tame inflation and (promote) growth rate. A good, systematic supply chain will help in bringing down inflation and help farmers. Meanwhile, key UPA ally Trinamool Congress today opposed the governments decision to open up the retail sector to FDI, while insisting that it was not breaking the norms of the ruling alliance by doing so. It is a coalition government and not the rule of a single party. We are opposing this decision but not breaking any norms of alliance. We have a right to protest such decisions, Minister of State for Health Sudip Bandopadhyay told reporters after leading a protest inside Parliament on the issue. Maintaining that the party would oppose the move when it comes to Parliament, he said Railway Minister Dinesh Trivedi has already registered his dissent in the Cabinet meeting yesterday. Initially, the big bosses (multi-brand retailers) will buy goods and keep them in the godowns. After 3-4 years, they will dictate terms on our prices when they have sufficient stocks. They will also sell cheap India goods outside India, Bandopadhyay said.

FDI in retail is withdrawn: NDA

Parliament to function until

Will not allow

PTI Nov 28, 2011

JP-led NDA today accused the government of allowing FDI in retail with an aim of distracting and disrupting Parliament which was set to discuss crucial issues of price rise and black money. NDA Convenor and JD(U) President Sharad Yadav and BJP spokesperson Shahnawaz Hussain said the question of allowing Parliament to function does not arise till government withdraws the decision on FDI.

Anand Sharma has written to all that he has talked to the stakeholders before taking this decision. Who are these stakeholders. Government should have talked to the political parties, Yadav told reporters outside Parliament House. He alleged that if this policy is accepted, then traders will be adversely affected. It will also lead to escalation in unemployment problem in the country. Asked if the opposition will allow Parliament to function if the FDI decision remains in place, Yadav shot back, The question does not arise. This is under a government plan not to allow Parliament to function. They have allowed FDI at a juncture when the Parliament was to discuss price rise and black money, Yadav said, adding that the decision was hurried through even though some of the Cabinet ministers were opposed to the proposal. NDA demanded that the FDI decision be withdrawn immediately. The entire opposition, other than Shiromani Akali Dal, is demanding that FDI policy should be withdrawn, Yadav said. Hussain charged that due to the government bringing up the FDI issue, the price rise and black money issues have been pushed back.

Shahnawaz Hussain of the BJP

The question of parliament working does not arise until the government withdraws its decision on FDI in retail, says Shahnawaz Hussain of the BJP They also charged that Commerce Minister Anand Sharma did not discuss the FDI issue with the opposition before going ahead with the plan.

Chapter: 6
sides of the debate:

Farmers

Why some

farmers Wal-Mart
Pallavi Polanki Dec 1, 2011

are relieved to be dealing with

............................................................................... Without the middleman the farmer now has an avenue that reduces chances of wastage and assures a better price. ............................................................................... apur, western UP: Every day around 8 pm, a text message arrives in Lalpur village in Hapur, a district in western Uttar Pradesh, around 60-odd km from Delhi. And it goes something like this: 30 November order Cabbage 450 kg, Beet 50 kg, Raddish 300 kg, Tomato 1000 kg, Cauliflower 1000 kg, Thanks (Walmart). Villages such as Lalpur have a population ranging between 1500-2000. Early next morning, carts laden with vegetables fresh from the field arrive at the collection centre where a quick quality check of the vegetables is done to separate out those that dont fulfill Walmarts criteria, and then weighed, loaded on to a truck, and dispatched to Delhi all before 1 pm. From the two collection centres there is another at Shyampur village farmers sell vegetables worth Rs 30,000 (3 tonnes). A demand that is set to raise to 10 tonne by the end of the week.

It is quite a dramatic rise in demand, given that the first truck that left Hapur on November 5, carried only 800 kg of vegetables. Says Beena, a farmer from Lalpur village who grows cabbage on her one acre of land, If the demand here picks up even more, we wont have to go out of the village or to the local mandi to sell our vegetables. At the mandi a sack (60-70kgs) fetches Rs 150. (That is about Rs 3 per kg). Then I have to give two percent commission to the arthi (middlemen who facilitates the sale between the farmer and the buyer). But at the collection centre, I get Rs 3.50 per kg in hand. Beena is able to sell 300 kg of cabbage at the collection centre. But the volumes of farm produce are such that as much 1 tonne of her produce she sells at the mandi. When there is no demand in the mandi, we have to go as far as Delhi and Agra to sell our vegetables. The women farmers spoke of instances when they were forced to simply abandon their produce in the cities for lack of buyers. Said Beena, We have simply dumped our vegetables for cows to feed on because to bring them back means more loss for us. Unlike foodgrains, vegetables cant be stored in homes. They rot within days. It is heartbreaking for a farmer who after

working so hard in the field is not able to sell the vegetables or has to sell them at a loss. Beena says, selling directly saves her time, transportation and labour costs. Funded by Walmart Foundation, Sunhara Walmart has set up Self Help Groups (SHGs) of women farmers from eight villages in Hapur who have since last month begun supplying vegetables to retail stores. The project is in collaboration with Agribusiness Systems International (ASI), a Washington-based consulting organization that runs Sunhara India projects. Sunhara Walmart is a two-year $350,000 initiative. According to ASI, Hapur was chosen because a survey conducted by them showed that farmers there suffered most from poor rates for their produce. Speaking to Firstpost a company official from Walmart said, After farmers were trained in crop management and post-harvest techniques to minimize crop losses, our buyers got in touch with them. We did the quality checks and guided them on the specifications and we started procuring from them. The payment is made directly to the womens federation account. We have another programme running here called the Direct Farm programme, which is a completely business-driven, unlike this, which is a social initiative. At the co-op centre, we collect the farm produce. Right now, I cannot comment on where the vegetables (from Hapur) are supplied to from the co-op centre. I need to check if they go to the wholesale stores or not. (Walmart in a joint venture partnership with Bharti Enterprise operates Bharti Walmart Best Price Modern Wholesale stores in India. There are 14 such stores, two of which operate in Uttar Pradesh in Meerut and Agra.) In a matter of six months, the project has set up 60 SHGs comprising 800-odd women farmers from eight villages. About 100 of these women farmers have been identified to supply to its two collections centres. Women farmers have also registered a federation called the Mahila Kisan Vikas Sanstha. The federation has applied to the Agricultural Produce Market Committee (APMC) for a trading licence, said Neelima

Tyagi, secretary of the local NGO partner to the project. Having an APMC license will allow the federation to directly deal with prospective buyers.

Raju, who is the middleman. Naresh Sharma/Firstpost

Said the Walmart company official, After NGO support is withdrawn from the project, the federation will continue to function. And if they get good prices from other buyers they will be free to sell it to them. We have only helped them build the marketing linkages. The rate that Bharti tells us, we minus the transportation cost (Rs 1.50 per kg) and the collection agents commission (10 paisa per kg). The rate for tomato at the Mandi is Rs 3 per kg. Here we give the farmers Rs 5.50-6, almost double the mandi rate. The collection agent is employed by the federation, said Himanshu from ASI who coordinates the Sunhara Walmart project in Hapur. Already, voices are being raised at the Hapur mandi by traders at farmers having found an alternate source to supply to. Raju is a commission agent or a middleman who operates at the Hapur Mandi. (A commission agent facilitates the transaction between farmer and buyers such as vegetable vendors, hotels, hostels, kirana stores. He charges farmers a commission for his service.) I am forced to charge 5.5 per cent commission3 percent is my commission and 2.5 percent tax that I have to pay to the mandi samiti. Everyone has to eat. And now there are two players instead of one in the market.

According to Raju, a crate of tomatoes 25 kg fetches the farmer Rs 11o at the Mandi. That is a little over Rs 2 per kg. No comparison to what Walmart is currently offering to farmers. The Hapur Mandi has about 30-35 commission agents, says Raju. It caters to about 15-20 villages. Should the volumes procured from the collection centres, such as one set up Sunhara Walmart and subsequently by the womens farmers federation, grows to extents where it begins to threaten the business of the Mandi, tensions are bound to grow. When MNC retail chains begin to directly buy from farmers, a likely scenario with Walmarts and Tescos who now only operate in the wholesale space entering the retail market the middlemen will be eliminated.

But, of course, these are initial days. Already, there are expressions of disappointment being expressed by some farmers over prices having fallen from its highs. Said Dharmendra, who owns 10 bighas (about two acres) of land in Shyampur, and whose wife is part of the SHG set up under the Sunhara Walmart Project. When it first started, we were getting very good prices at the collection centre. But now, the prices they offer are the same as those we are getting at the mandi. But we will continue to sell to them. After all, we have now formed a federation and we have to make sure it is a success.

Women farmers have also registered a federation called the Mahila Kisan Vikas Sanstha. Naresh Sharma/Firstpost

Chapter: 7
sides of the debate:

Academics

he governments move to allow foreign retailers 51 percent stake in multibrand retail ventures has sparked uproar among politicians and some other sections of society. Advocates say relaxing investment rules for the retail industry will promote investments in Indias poor supply chains and increase jobs, while critics claim that foreign retailers will only kill the livelihoods of small retail traders.

ings declines, including the impact of changes in part-time work and shifts to less-skilled workers. However, the study also noted that the earnings declines associated with Wal-Mart do not necessarily imply that Wal-Mart stores worsen the economic fortunes of residents of the markets that these stores enter. Wal-Mart entry may also result in lower prices that increase purchasing power, and if prices are lowered

Retail FDI:

The merits over-hyped,

are

say academics
FP Editors Dec 1, 2011

............................................................................... The governments move to allow foreign retailers 51 percent stake in multi-brand retail ventures has sparked uproar but academicians differ. ....... ........................................................................ So are the merits of increased foreign investment in multi-retailing really as rosy as claimed? Firstpost presents some opposing arguments provided by academics to some of the most-common claims. Claim 1: Organised retail chains like WalMart will increase jobs. Not necessarily true, argues a 2005 paper by the Public Policy Institute of California titled The effects of Wal-Mart on local labour markets, authors David Neumark, Junfu Zhang and Stephen Ciccarella noted Wal-Mart reduced employment in the retail sector by 2-4 percent in the neighbourhoods studied. Their study also indicated wages per worker declined by 3.5 percent, although this conclusion was less robust. The authors, however, acknowledged that they could not pinpoint what was causing the earnnot just at Wal-Mart, but elsewhere as well, the gains to consumers may be widespread. Claim 2: Organised retail chains will not hurt small vendors. Thats not true, according to a 2007 paper from the Centre for Policy Alternatives entitled FDI in retail: Implications of Wal-Marts backdoor entry, which notes that 98 percent of Indias retail trade is in the small and unorganised sector. With organised retailing growing at 37 percent, even as the total retailing industry growing only at 5.7 percent, the paper argues that the entry of foreign retailers is a case of bad timing (although this argument was made in 2007). Our contention is not that Wal-Mart or other similar undertakings shouldnt ever be allowed to venture into Indian markets, but that this

is not the right time for them to be let in. A number of preconditions currently absent in the Indian industrial and agricultural sectors should be met, before we permit foreign investment in retail. If we fail to do so our small manufacturers and the hundreds of vendors and small retail shops will bear the brunt of the blow and millions will be rendered jobless, it noted. From 4.7 percent of the total retail market now, it (organised retail) is expected to reach 9 percent by 2010. The current growth at 37 percent of organised retail, when the total retail market is just growing at 5.7 percent is clearly at the expense of the small retailer, the paper added. Claim 3: Organised retail will invest in and improve supply chains. So far, that hasnt been the case. According to a 2010 commentary paper by Sukhpal Singh from the Indian Institute of Management Ahmedabad, food and vegetable-selling retail chains (barring a few exceptions) were found to be procuring from farmers through informal arrangements and without any commitment to buy regularly. In other words, supermarkets were found to be unwilling to share in the risks of growers. This puts farming businesses under pressure which is passed on to the workers on the farms, who are often women.

There was also little involvement on the part of supermarket chains with producers and improvement in supply chain efficiency was absent, the paper noted. The paper also cited studies that showed a significant number of traditional food and vegetable vendors reported declines in footfalls, sale and incomes across key cities such as Bangalore, which had high levels of supermarket penetration. Claim 4: Organised retail improves competition. The IIM paper noted that in 2007, five major chains accounted for more than 50 percent of retail sales in most of European Union countries, as up to 80 percent of the retail markets in Denmark and Finland. Own brands of these supermarkets accounted for a major share of the total sales 43 percent in the UK, 40 percent in Denmark and 42 percent in Belgium. Rapid rise of supermarket chains would lead to concentration of market power, with upstream suppliers facing buyer power in terms of lower prices and higher private standards, and the downstream buyers (consumers) facing higher prices due to lower competition, it noted.

Chapter: 8
sides of the debate:

Will FDI last?

nder attack from the opposition and allies over FDI in retail, the Union cabinet has called an emergency meeting at 7 Race Course Road, Prime Minister Manmohan Singhs residence. The meeting, chaired by the prime minister, is being attended by the Congress president Sonia Gandhi, Finance Minister Pranab Mukherjee, Commerce Minister Anand Sharma and senior Congress leader Ahmed Patel. The meeting follows an ultimatum from the BJP-led opposition asking the Congress-led

The government has so far contended that the decision will boost the economy by bringing in more investment, increasing infrastructure for food storage and creating employment in the country. The opposition on the other hand has been arguing that the move will affect the small farmers and traders adversely, creating widespread unemployment. Even allies within the UPA, like the Trinamool and DMK, are arguing against the move.

Cong meets over

Is a rollback on
FDI in retail:

the cards?

............................................................. With the Opposition blaming the government over the logjam in the parliament, and standing firm on its demand to roll back the government's decision in 51% FDI in retail, the prime minister has called an emergency meeting at his residence. .............................................................

FP Staff Nov 28, 2011

UPA to roll back its contentious decision to allow 51 percent FDI in multi-brand retail. Sushma Swaraj, leader of opposition in the Lok Sabha, had demanded this afternoon that the decision be revoked by this evening so as to allow Parliament function normally. No business has been conducted in both houses after the beginning of the winter session on November 22. It is estimated that over the last six days nearly Rs 6.5 crore worth of public money has been wasted due to the logjam in Parliament. Speculations are rife that the government might agree to a partial roll-back on FDI.

Earlier today Sushma Swaraj had blamed the government for the logjam in Parliament. The opposition has been demanding a debate on the issue. The government on the other hand has resisted any debate in the house which entails voting. The prime minister had met the president earlier today briefing her on the impasse. He has called for an all-party meeting tomorrow morning before Parliament convenes at 11 in the morning.

Chapter: 9
sides of the debate:

The world is waiting

more clarity

global retailers wait for

FDI nod given,

ew Delhi: Global retail giants, including IKEA, Walmart and Carrefour, are studying the finer details of Indias relaxed FDI norms for the sector as they look to tap opportunities in the country.

operations. India is since long a strong and growing purchase market us, IKEA added. India is since long a strong and growing purchase market for IKEA, the Scandinavian furniture retailer said in an e-mailed statement to PTI.

In the meantime, ............................................................................... while closely watchGlobal retail giants are studying the finer details ing developments of Indias relaxed FDI norms for the sector as post the changes, they look to tap opportunities in the country. these firms are ............................................................................... staying focussed on their current operaEven French multitions in India that includes sourcing in case of IKEA, and cash and brand retailer Carrefour that has already entered India through the cash and carry route is carry businesses for Walmart and Carrefour. closely watching the developments taking place here. Welcoming the governments move to allow 100 percent foreign direct investment (FDI) in Carrefour will remain attentive to the finalisasingle brand retail, IKEA said in an email contion of this new regulation and continues the versation to Firstpost, We will now over the development of its cash and carry operations, next few days look into the details of the decision and we expect to present more information the company said in a statement. shortly about our intention to establish retail

The French retailer currently operates two cash and carry stores in India. Carrefour welcomes the Indian Governments decision to allow up to 51 percent foreign direct investment in multi-brand retail, it added. Echoing similar views, Walmart said it is willing to invest in back-end infrastructure that will help reduce wastage of farm produce, improve the livelihood of farmers, lower prices of products and ease supply-side inflation. We will need to study the conditions and the finer details of the new policy and the impact that it will have on our ability to do business in India, Walmart India President Raj Jain said. Last week, the government approved 51 percent FDI in multi-brand retail, while completely opening the single brand segment to foreign investors. According to sector observers, the foreign retailers will prefer to adopt a wait and watch policy before they make any announcements about their plans in India. The picture is not very clear on the multi-brand side, as there is confusion over 30 percent sourcing from SMEs. Whether it is allowed to be done globally or only from India, Enrst & Young Partner Tax and Regulatory Services Prashant Khatore said. Secondly, there is also ambiguity on the number of cities in which these retailers can open stores which is dependent on the veto power of the states, Khatore added.

In case of single brand retail, it would vary from category to category, how companies approach this market. Since the 30 percent sourcing clause also applies to single-brand retail also, there has to be more clarity, Khatore said.

Looking into the current situation, I do not think there would be immediate rush to open stores here. Possibly people (foreign retailers) would want to wait till the government comes out with a clear document, he added. As per FICCI estimates, the Indian retail sector is currently pegged at around $600 billion, with modern retail accounting for about 5 percent.

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