FDI in retail:Now or never? Source.....Ahmedabad Mirror....

As the BJP-led NDA called for bandh, economists, politicians, home-maker, student and grocer sat in Mirror office yesterday to discuss what the latest shot of reforms means to the common man and Indias growth story
TEAM AM

Posted On Friday, September 21, 2012 at 02:39:56 AM

After a prolonged policy stasis, the Union government woke up last week, and what a set of decisions it took. FDI in retail, aviation, increase in diesel prices were allowed. They all aim at shaking the economy and putting it on the growth path again. The reforms at first glance appear credit positive. But considerable execution concern remains given the Congress-led UPAs dependence on its allies, some of which are opposed to FDI or are ambivalent still. Even as the BJP-led NDA called for bandh economists, politicians, homemaker, student and a grocer sat in Mirror office on Thursday to discuss what latest shot of reforms means to the growth story of economy and the mango man. Pressure/ compulsion Prof Sebastian Morris of IIMA set the ball rolling by saying that the decisions were much needed and long due. The idea of the Union government is to prop up flagging economy. While this set of reforms will be of some help, the government needs to do more. Importantly, the government is yet to get the backing of the Reserve Bank of India. To this state Congress president Arjun Modhwadia said that the economy needed a stimulus and quickly. FDI in retail can stimulate growth. It was on the cards since September last year. To some it may not appear good politics at this stage, but they have to understand that economy has its compulsions.

(L to R ) PROF SUDARSHAN IYENGAR, PROF SEBASTIAN MORRIS, PROF HEMANT SHAH, ARJUN MODHWADIA, DILIP SHAH, EISHA KINRA, YAMAL VYAS, ARCHANA VERMA

Like in diesel, good politics would be to increase the price in a rupee at a time, but it had to be jacked up by Rs 5 in one go. Yamal Vyas, member of state Finance Commission and former BJP spokesman countered that there was pressure from sovereign rating agencies. The same rating agencies had put pressure for liberalisation in the 1990s. But 50-60 per cent of the people in the country live below poverty line. They need protection. With FDI, you are leaving goats in front of hungry lions without protection. Nirma Institute of Management student Eisha Kinra intervened to say felt that FDI will act as stabilising mechanism in the economy. In-built compromise Referring to the shaky ground the Union government is on, Prof Morris pointed out that the decisions have compromises in-built. It is for the state governments to decide if they want FDI in their region or not. However, as it happened with value-added tax it began with a few states and later all others adopted it same is likely to happen with FDI. It is obvious that the states will weigh the pros and cons before implementing it, said Gujarat Vidyapith Vice Chancellor Sudarshan Iyengar. There will be demonstration effect even as major states and some states from North-East have expressed support while some states have opposed it. Interestingly, Gujarat did not make its stand clear during consultation. Modhwadia pointed out that In 2004, the BJP-led NDA government had prepared a cabinet note proposing 100 per cent FDI in retail without any conditions. We have decided on 51 per cent with conditions. FDI decision had been taken through a consultation process and FDI in retail was also on the political agenda of West Bengal Chief Minister Mamata Banerjee, the biggest opponent to the decision at present. The state chief secretary has supported the idea and let me tell you, the same BJP government that is opposing FDI today will be among the first to invite it, Modhwadia said with a smile. Consumers benefit Consumers stand to benefit the most was the refrain. Home-maker Archana Verma, who also runs a not-for profit organisation Swayam, said that she would prefer FDI as it would give her consistent pricing. As a consumer, I will also get round the year supplies as they have good storage and chain supplies. For me, this is a benefit. I feel that the farmers,

too, will be benefited by this. But, as a citizen, I know it will hamper the business of the small retailers, Verma said. According to Modhwadia, there are three major stakeholders in FDI in retail: the farmers, the consumers and the small traders. All three stand to benefit. Currently, farmers get only about 14 per cent of what they should get. Most of their products are perishable and lack of adequate cold storage makes them lose out on the prices. People in landlocked North- Eastern states buy goods at five times the prices people in other states pay. Gujarat farmers produce groundnut oil and sell it at, say, Rs 1,100 per tin; but the very next month it hits the markets at Rs 2,200 a tin. This will stop as farmers will be given a higher price and consumers will be sold goods at a lower price. The middlemen, who controlled the prices, will be eliminated though. Also, big international players will ensure quality controls that marginal traders do not ensure. Vyas was apprehensive though. After the initial benefits to the farmers and consumers, the MNCs will have some sort of monopoly. Things that cost 30 paise today will be sold at Rs 30 since there will be no competition. The politicians in power will get short term growth figures, but the multi-brand retail chains will be the biggest beneficiaries in the long run, he said. Small traders, who have a longer cycle to get back working capital, will be sitting ducks and will most likely be wiped out. This (FDI in retail) is a short cut to achieve growth figures. Prof Morris differed. Indian housewives do not go to malls to shop groceries as frequently as they go to small retailers, he pointed out. Kinra added, Out of personal experience, I know that multi-brand stores also sometimes run out of stocks. For working women, it makes a lot of sense to just walk into a multibrand store and pick up things. But, if late in the evening, she needs paneer, she is not going to go all the way to the big store for it. She will choose the next door kirana store. So, saying that malls will mar the business of the small time retailers is not correct. Dilip Shah, who runs a kirana store in Maninagar said that it is difficult to cheat Amdavadi/Gujarati consumers. Hence, if the customer doesnt find value for money, which they are used to, they will come back to their local retailer for items of daily use.

We kirana storewallahs give a personal touch to each transaction. It is this factor that local retailers can rely on. A local retailer will give you right suggestion as he knows you personally and wants you to come again to his shop. Also for the sale of loose goods like grains and other similar products they maintain better quality because of trust. Prof Iyengar looked at FDI in the larger perspective of consumerism. FDI is aimed at fanning consumerism, and as such I am strongly opposed to it. I believe it will only increase the problems of the nation... how much will you extract from mother earth? Impact on retailers Prof Morris was of the opinion that FDI will give advantage to multi-brand retail. It will wipe big retailers, not small ones, as the former are looking for suitors. Malls here are not doing that great hence they want themselves to be taken over. However, FDI may or may not pick anyone. Prof Iyengar said with the coming of FDI in retail, the whole market dynamics would change. It is not just the small kirana shop owner, who will feel the pressure due to direct competition, but even the consumer, farmers, producers and manufactures will feel the pressure as they will have to match the foreign brands. Dilip Shah added, Yes, if FDI comes in retail, our business will be affected but it would be hardly 10 per cent. Besides, the impact will remain for four-five years. Later it will again become retailers market as people want quality service. Prof Iyengar added, as against impersonal mall employees, kirana shop owner has a bonding with his clients. He becomes aware about his or her choice of products, which makes the shopping focused and within the set budget. But with the coming of big retail outlets like Wal-Mart, though the consumer will be spoilt for choice, he will be exploited as he will end up shopping products which were not there on his list when he entered the outlet. With the coming of FDI in multi-brand retail, small shops and entrepreneurs will bear the brunt as they will have to match them in terms of competition, attracting customers, quality, product choice, and price range. If they dont, I feel small businessmen will be forced to down their shutters, Prof Iyengar said. On sourcing his stuff, Shah said, kirana store owners like him dont fear FDI in retail. They would rather welcome it. It is better to buy products from such

big companies that come through FDI in India than current distributors because they (distributors) charge us more. The foreign companies will offer goods at much cheaper rate which will be ultimately beneficial to retailers and customer too, said Dilip Shah. Prof Shah was convinced of the longevity of the small kirana storewallahs. I have not seen anywhere in India and probably anywhere in the world that local retail or small shops have had to close down because of malls or big format retail. Rather, there are cases wherein the malls have closed down but the next door kirana stores nearby have survived and are doing good business. What next Prof Morris said the latest decisions have to be complemented with more policy inputs to bring about the desired result. The economy will be revived only if growth picks up and growth depends on many factors, including external ones. The steps announced send out a signal to the people and the government has to tap their investment. Also, the RBI has to chip in, he said. Prof Shah said opposing FDI in retail and welcoming it in other areas was being unfair. If we point out that MNCs will take away more money by holding larger share, how does it matter? The big companies in India are doing the same. The rule has to be similar for everyone. After allowing FDI, ensure that you also implement laws pertaining to unfair and restrictive trade practices. Ensure that the home grown retailer enjoys the same concessions from the manufacturers that MNC giants will get. Local retailer will not only survive, he will do well, Prof Shah said. Prof Iyengar wanted the government to further revise and refine the terms for FDI before going ahead with upto 51 per cent inflow in multi-brand retails, and upto 100 per cent in single-brand. Political gambit Modhwadia said decision on FDI is not politics. There was an urgency to revive the economy and FDI is seen as a tool to do that. Every reform has been opposed initially only to be accepted wholeheartedly later. This will happen in the case of FDI in retail. He recalled the telecom revolution initiated by Rajiv Gandhi through Sam Pitroda. When computers were introduced by Rajiv Gandhi it was opposed and Sam Pitroda was called a CIA agent who would take away jobs of people.

Today IT generates the highest number of jobs and Indian techies have made a mark globally. However, Vyas held on to his stand that the decision had been taken under pressure from sovereign rating agencies. It is unlikely to make the economy grow. Politicians will benefit and there will be a feel good factor initially. In the long run it will boomerang. Job creation Kinra was upbeat on the job front. It will create jobs for skilled as well as unskilled labour. The job attrition is highest in the corporate retail stores. The presence of foreign companies will generate a lot of employment. Also, they will train their staff. For well educated and skilled persons there will be many more options. Prof Morris stressed upon the need to distinguish between forced entrepreneurship and employer. A person should be given a choice to be employed or be an entrepreneur. If big retails come in, a man can join retail and get employed. We cannot say that a big retailer will cut down entrepreneurship skills of a small retailer. After all, the choice is his. Prof Iyengar said big retail chains might enter a labour-abundant country with capital-intensive technologies. However, if the labour laws are not flexible, this would have a relatively small impact on employment generation. It is expected that the impact of FDI in retail will have a much wider impact on organised employment than what happened in IT area about a decade back. But my concern is that they should not resort to automation in place of giving jobs to Indians. The policy makers have to tackle this issue very carefully with the right reforms to get the most out of this deal to increase employability in the country, which in turn will improve the living condition of many people. ROUNDTABLE ON FDI PROF SUDARSHAN IYENGAR VICE CHANCELLOR, Gujarat Vidyapith. His areas of research have been natural resource development and management and people's institutions But my concern is that they should not resort to automation in place of giving jobs to Indians. The policy makers have to tackle this issue very carefully with the right reforms to get the most out of this deal to increase employability in the country, which in turn will improve the living condition of many people

ARJUN MODHWADIA PRESIDENT of Gujarat Pradesh Congress Committee. With a degree in engineering, he worked as an asst engineer with Gujarat Maritime Board for almost 10 years but quit it to enter politics The state chief secretary has supported the idea and let me tell you, the same BJP government that is opposing FDI today will be among the first to invite it PROF SEBASTIAN MORRIS PROFESSOR of economics at IIMA. He has been a member of the Working Group for the Ninth Plan on Small Scale Industries and Chairman of the group's sub-committee on Finance and Sickness These steps have to be complemented with more policy inputs to bring about the desired result. The economy will be revived only if growth picks up and it depends on many factors. The steps announced send out a signal to the people and the govt has to tap their investment YAMAL VYAS CHARTERED ACCOUNTANT by training. He is a member of Gujarat State Third Finance Commission. He is also a former spokesperson for Bharatiya Janata Party Small traders, who have a longer cycle to get back working capital, will be sitting ducks and will most likely be wiped out. This (FDI in retail) is a short cut to achieve growth figures PROF HEMANT SHAH A PROFESSOR of economics at H K Arts College. His area of interest includes micro economics and local self-help groups. He writes regular columns in some publications. I have not seen anywhere in India and probably anywhere in the world where local retail or small shops have had to close down because of malls or big format retail. Rather, there are cases wherein the malls have closed down but the next door kirana stores nearby have survived and are doing good business ARCHANA VERMA HOMEMAKER who also runs an NGO called Swayam that works with street children As a consumer, I will also get round the year supplies as they have good

storage and chain supplies. For me, this is a benefit. I feel that the farmers, too, will be benefited by this. But, as a citizen, I know it will hamper the business of the small retailers EISHA KINRA A graduate from Shri Ram College of Commerce, Delhi University, she is pursuing MBA in finance from Institute of Management, Nirma University Kinra was upbeat on the job front. It will create jobs for skilled as well as unskilled labour. The job attrition is highest in the corporate retail stores. The presence of foreign companies will generate a lot of employment. Also, they will train their staff. For well educated and skilled persons there will be more options DILIP SHAH GROCERY SHOP OWNER from Maninagar. He has been running 'Dilip stores' for almost 30 years now Yes, if FDI comes in retail, our business will be affected but it would be hardly 10 per cent. Besides, the impact will remain for four-five years. Later it will again become retailers market as people want quality service FDI FACTFILE BOOST TO FLAGGING ECONOMY India opened its retail sector to foreign supermarkets last Friday, a major economic reform that has been stalled for months by political gridlock and came as part of a package of measures aimed at reviving growth. The policy came with provisos which, some analysts said, could hamper firms hoping to set up shop in the worlds second- most populous country. Key aspects of the policy: STATES TO DECIDE Individual state governments will decide whether to allow foreign supermarket chains to enter. The Congress party-led government hopes this will take the sting out of opposition from regional parties who say the policy will destroy jobs. Opponents of the reforms include West Bengal Chief Minister Mamata Banerjee and the most powerful ally in the UPA government. SOURCING FROM SMALL FIRMS

Foreign retailers will have to source almost a third of their manufactured and processed goods from industries with a total plant and machinery investment of less than $1 million. Supermarket chains will certify compliance with this themselves. The government will reserve the first right to procure food produce from farmers before companies do, in order to provide stocks for its food subsidy schemes for poor households. MINIMUM INVESTMENTS Foreign retailers will have to invest a minimum of $100 million, and put at least half of their total investment into back-end infrastructure, such as warehousing and cold storage facilities. This requirement has to be met within three years of a retailer setting up shop. The aim is to meet one of the key justifications for opening the supermarket sector to foreign players revamping the countrys crumbling infrastructure and unclogging bottlenecks. The bottlenecks fan inflation, which has proved a major headache for the government and the Reserve Bank of India. Policymakers argue opening the sector will help ease prices for a country where hundreds of millions live in dire poverty. ONLY IN BIG CITIES Foreign retailers will only be allowed to set up shop in cities with a population of more than 1 million. In states where there are no cities with such a big population, individual state governments can choose where to allow foreign chains to open. Critics of the new retail policy, including from opposition parties and domestic traders, say opening the doors to the likes of Wal-Mart will wipe out the countrys small, family-run neighbourhood stores and trigger mass unemployment. By restricting foreign firms to cities, the government hopes the supermarkets will become accessible to the countrys swelling middle class, while protecting the livelihoods of shopkeepers in smaller towns and rural areas. OTHER RECENT REFORMS New rules also allow for an increase in foreign ownership in the power sector. Fixing the poor financial condition of utilities so that they can upgrade

infrastructure and improve operating performance is important in addressing a capacity constraint on the Indian economys growth potential. The government has also altered fuel subsidies so that there is less of a difference between the price of diesel and petrol and the subsidy is more accurately directed at the poor. If implemented fully, these measures should help contain the fiscal cost of fuel subsidies this fiscal year, although Indias budget remains exposed to commodity prices more broadly through food and fuel subsidy programmes.