Now that the Government has decided to defer decision on allowing 51% foreign-owned Indian companies to do multi-brand retailing in India, Indian Parliament has been saved from another winter session generating heat without work to cool down Delhi's cold and cough among the Indian educated elite. It is not very clear though why the Congress Government had to get a Cabinet clearance on 51% FDI retail before it could get the Parliament consider and pass the long pending legislation items like Land Acquisition Bill, Companies Act Amendment Bill, Lokpal Bill and a host of other bills and draw Opposition Political Parties into the game of stalling Parliament functioning for the first nine days (out of 21 days) of the Winter session: the FDI decision could have been announced after all major legislative business were over.
Good that the intense political drama over an inconsequential issue has come to an end temporarily. India can afford to wait for some more time till another bankruptcy situation arrives when Indian politicians would have to eat their own words and beg for FDI in so many areas because of compulsion. The US dollar value of the Rupee has depreciated just 16% in last four months and not yet adjusted adequately to the 30%+ inflation in the last three years. Interest rates are at some peak after 13 successive Repo rate hikes by the Reserve Bank of India. The stock markets are down and nervous as export growth is faltering, fiscal deficit overshooting budgeted targets and inflation reluctant to come down despite RBI's anger. Current Account deficit is going to be higher and economy GDP growth rate falling back to 7% or lower with hardly any strength in industrial investment. The situation reminds one of the 1989-90 bankruptcy crises and rekindles hope for new doses of economic reforms under duress / precarious economic compulsions. It would be interesting to see which new coalition Government two years down the line gets the responsibility to bite the bullet.
Be that as it may. It is worth revisiting the recent drama once again. Those who objected to FDI retailing was not prepared in advance to deal with the issue. They had done well in reacting smartly thinking off their feet n the streets. They became great economists overnight and invented a thousand reasons why the idea of FDI retailing was not only bad but evil. Let us enumerate their innovative arguments.
1. Retailing is not high technology staff that can come embodied in FDI, said the opposition experts. The same old Indian belief that Indians are poor only in high technology but very proficient in low technology activities would not easily die. The fact however is that Indian brain power is equally weak in making the best use of even low technology: just consider the quality of education based on the use of the most simple, black board and white chalk technology of teaching. But retailing is more organization than technology. How good are Indian in organizing things efficiently and effectively? Track record does not show any promise. Wholesalers, stockiest and distributors have remained virtually the same in the last forty years and large fast moving consumer goods companies continue to depend on these outdated, feudalistic chain of stockiest and distributors. Foreigners have innovated in organizational alternatives: India continues to remain dependent on archaic organizational designs for retailing. This is issue that dumb politicians will ever be able to recognize, let alone such stalwarts Jaitly, Sushma Swaraj, Yechuri, Karath, Buddhadev Bhattacharya or Mamata Bannerjee or Advani. Organizing retail business is not of the same low level of organizing political parties, rallies, strikes or the Common Wealth Games- the Indian way.
2. Only 51% FDI embellished Retailing will hurt the Indian Farmers, say the great opposition. How? They will have to sell only to a few FDI retailers who will squeeze the farmers sooner or later. It seems that FDI retailing companies are likely to be more or less akin to local political mafias who can force farmers to sell the goods only to the small or big traders favored by political mafias. These politically patronized traders squeeze the farmers and share the spoils with their political bosses. If the 51% FDI retailers come with their massive (?) money power, they will wean away farmers from the clutches of existing trade mafia and exploit the farmers thereafter. So farmers will continue to be exploited. So, why not get some FDI also!!!
Why would 51% FDI so evil and 26% not so evil so far? No one knows. Who will bring in the matching 49% of the massive FDI investment dragon? No one knows. Maybe Reliance Fresh or Spencer’s become 51% FDI. Will 51% FDI retail companies get listed and widely held and farmers and political mafias given shares so that all can share the spoil of the 51% retail? No one knows!!!
Will there be just a couple of 51% FDI retailers in India? Can't there be ten such 51% FDI retail companies fiercely competing in the Indian market? With competition there would be difficulties to squeezing farmers. There is no need to think of these - 51% FDI retail is a dragon that will gobble up Indian farmers as if there are no farmers as highly productive and as least cost supplier as Indians and India does not import goods to be retailed (unlike USA where imported ware from China - tables, chairs, clothes, toys, cutlery, etc and from other countries including India - rice, fish, spices, fruits, fruit juices, etc
3. Dragon of 51% retail will squeeze the Indian consumers says the opposition. How? They will soon drive out all existing retailers from the market and then increase their prices to fleecy the Indian consumers. How will this happen? How will the 51% FDI Indian companies sell high priced goods to the 40% Indian below and around the poverty line? How much of the remaining 60% of the population will get to buy from the outlets of 51%FDI retailers? Have FDI embellished insurance companies and mutual fund companies driven out all competition? How the low FDI content Indian airlines are companies doing by fleecing Indian air passengers? Have McDonald, Domino, Pizza Hut driven out similar Indian businesses or more such Indian shops have emerged to meet the demands of the growing new high middle class? How will the big and small FMCG companies change their procurement, marketing and distributing network and strategies once the 51% FDI retail come? Will they sell their entire produce to the new big retailers? Britannia biscuits, Maggie noodles, Hamam soaps, Horlicks, Nirma detergent, lux toilet soaps, Emami mustard oil, Colgate toothpaste will all be gobbled up by 51% FDI retailers.
What about the consumers who visit daily to municipal markets to buy fresh vegetables and fish every day - they will all flock to 51% FDI retailer outlets? What about households who buy daily grocery items on credit from the neighborhood kirana shops and pay off monthly? Will the FDI retail outlets start operating on credit sale mode? What will the small rural housewife who comes daily to the metro/ semi-urban market to sell less than 10 kgs of vegetables and flowers grown in her backyard? She will give up growing anything in the backyard? What happens to the panshops and hawkers? The FDI retailers will kill them? The FDI-retail opposition lobby knows better.
4. The 51% FDI retailers will kill the small traders and local kiran shops leading to huge unemployment says the opposition lobby. How? They can easily imagine that under the FDI influence, Indian consumers will discard their habit of purchasing as they walk back home from office, stop bargaining with the pavement hawkers and drive out vendors who bring vegetables on the door step. And while all these people currently employed in retailing, the 51% FDI retailers will retail using machines only!!!
The FDI-retail opposition lobby is matched by the pro-FDI lobby. They have lot of arguments.
1. They say "51% FDI retail will bring in foreign exchange required by the country". We know that 26% FDI retail did not bring Foreign exchange: nor did 100% FDI food processing bring in much forex. Why speculate an argument?
2. They say '51% FDI retail will reduce inflation as they will offer lower prices to the consumers'. For, they will pass on the benefits of efficiency and economies of large-scale operation. Will the FDI retailers come to benefit the Indian consumers or make money on their investments and organizational innovations? If Government continues with large fiscal deficits and waste money in unproductive projects and the agricultural production and productivity fails to grow fast enough, no one can reduce inflation.
3. They say '51% FDI will increase employment'. All new activity increases employment but that may partly be replacing employment in existing retail operations. FDI or not, Investment in retails can increase employment. What is so great?
4. They say, '51% FDI retail will lead to investments in infrastructure - rural roads, cold storages and go-downs'. Yes, large retail business cannot grow without improvement in infrastructure. If the non-FDI retail has not grown enough because on infrastructure constraints why would FDI retail take the responsibility of improving the infrastructure of roads to move goods they will be dealing in by using those very long 16 wheeler trucks/ vans. As if the roads will be used by only the FDI retailers.
The reality is that one does not need any argument for or against 51% FDI in retail. The retail business, as is true for any other business supplying goods to millions of households should have no entry barrier and attract investments. Even if 100%FDI in multi-brand retail is allowed today, we may not see much of FDI rushing in just in a year or two. India is a big and sprawling country with a great diversity of consumers.* Whether non-FDI or FDI, it will take decades to modernize Indian retailing. Land and floor space acquistion is neither going to be easy or inexpensive. Contract farming is not going to be easy to manage in local political mafia dominated rural areas; loading, unloading, transportation and transshipment with substantive gains in efficiency and cost savings will not be easy to achieve soon. There will be lot of experimentation with alternative business models and strategies. Even over a decade, the scale of FDI investment in retails and size of FDI operations are not likely to become a great contributor to forex inflows relative to India's needs or occupy a significant share of the entire retail market in India. But by then the retail market might have changed for the better - lot of wastage of farm produce in transition, storage and handling would be avoided, wares will be clean and safe, the farmers will find their lands more valuable, the kirana shops will find their shop premises and floor spaces more valuable (if they could just increase the productivity substantially) and the consumers will not be fleeced by traders and middlemen protégé’s politicians and political parties.
But Indians are more comfortable not experimenting in the face of false scare of an Unknown, imaginary Dragon that can devour the children if they do not go to sleep.
How imaginative are the Indian 'frog-in-the-well','jack-of-all-trade' political intelligentsia. India with a 1250 million population is served by about 15 million retail store outlet of various types. As against this, The US population of 330 million is served by just 1 million retail stores. The largest retailer by sales is Wallmart which now has 8150 outlets, of which about 4400 outlets serve the 33 crore US population. Besides there are so many outlets of Target and Dollar Street, and of course outlets of speciality retailers like Home Depo, CVS, Seers, Jc Penny, MacDonalds, Pizzahut, Domino, etc. And of course so many malls that house separate floor space for different brands like Macys, JC Penny and others. Besides, Amazon reaches households so many wares.
If only 10% of the Indian population of 125 crore is targeted (leaving aside the rural areas and the urban poor), a big retailer would need at least 1500 outlets. If an outlet is opened every third day it would require close to 10 years. Land and floorspace are not going to be so easy to arrange and cost would be high in urban areas. How insignificant is the FDI retail issue can be judged from these numbers? There are more stationery, grocercy retail outlets than Walmart and Target have. How will FDI funded retailers in India monopolise and place the Indian consumers and farmers at their mercy and drive the kirana shops into extinction. How many MacDonald, Pizzahut, Domino and Subway have come up in India in the last five years and how many local restaurants and eatinng houses have closed shops as a result?
