“Haaai FDI. Lol, Just Kidding”

As Im sure most of you are aware, the Government of India took a bold decision to allow 51% FDI in the retail sector, last month. Less than half a month later, this decision was withdrawn after furor from Opposition and some allies, as well. This has been one of the most comical and appalling things we’ve seen happen in recent times(remember there have been far too many incidents like this, so it must be quite ridiculous to be top of the pile).  Here I am mulling over what could possibly be the reason and Ive managed to deduce what follows. But before going there, we need to have a little perspective on the situation.

 

The retail market is one of the most competitive sectors in the India economy. It varies from the established super-markets or mega-stores like Spencers Daily, Nilgris, Reliance, Big Bazar, Landmark to people who sell at farms, in the local markets and people who cycle to your house with vegetables every morning. As almost all highly competitive sectors, you can understand that this is going to mean low margins. People must understand that in retail costs extend beyond normal operating costs and go on to constants discounts, price cuts, offers etc. to help gain market share(which mostly ends up being temporary). Needless to say, the recent economic slowdown has hit retailers. Lower volumes, lower margins, increasing costs due to infaltion and sky-rocketing rentals have left most Retail Giants stumped on how to better the situation. The obvious answer is FDI in this sector will help increase the margins, volumes and growth. Not stopping there, it improves quality, confidence and likely more discounts and better offers for consumers. Would Foreign Retailers be interested? Hell yeah!

 

One report estimates the 2011 Indian retail market as generating sales of about $470 billion a year. The Economist forecasts that Indian retail will nearly double in economic value, expanding by about $400 billion by 2020. This projected increase alone is equivalent to the current retail market size of France. The Indian consumer market is the biggest in the world and will continue to grow at a very high rate. Foreign Retail Giants like Tesco and Walmart have been monitoring the Indian Retail Scene for a few years now. They’d been in constant discussion with some established Indian retailers regarding their possible entry or tie-ups to enter into India.

 

Now the Government has decided to pull back on the plan of allowing 51% FDI in Retail. This happened in less than a month. The reason is objections from the opposition, allies, logjams and a Nation-wide Bandh. This sudden shift in government stance could wreck the plans of India’s top retailers like Future Group, Bharti Retail, Spencer’s Retail and Next, all of which were banking on foreign capital for their expansion and expertise to run a complex business like retail.

 

The Indian Economy desperately need to kick-start its growth and a new lease of life in Retail through the means of FDI would have delivered just that. The most alarming part is not the fact that it was withdrawn, but the fact that the Government was bold enough to put into place first and then be threatened so easily to withdraw it. FDI could have easily helped boost India’s foreign reserves as well, which is in a sad sad state of affairs. However, that is a matter which will be discussed separately, through another piece on the blog.

 

As consumers, why should be we be denied better quality products, more affordable prices, recognised brand-names, more job employment opportunities in favour of buying from local sellers, through various middle-men, at inflated prices? Is a small-scale retail base of people in Lakhs more important than a consumer base of several crores? The Govt. simply shouldnt do that. They should succumb to this squabbles over vote-bank politics, where most of the parties are playing to gallery. A lot of people opposing this deal have vested interests. I fail to see how they will put up a formidable argument to having FDI.

Consumer : “Hey, I want FDI. It’ll be useful for us all.”

Opposition : “No. Think about the farmers and small scale sellers.”

Consumer : “But there are far more consumers than sellers. We have get better quality and much better offers and prices. Its a lot more affordable and dependable.”

Opposition : “No. Think about the farmers and small scale sellers.”

Consumer : “But companies like Walmart and Tesco normally buy or use upto 40% of their products from SMEs. They will be protected upto a significant level.”

Opposition : “Uhhh… well….. Foreign companies have poopy pants!”

 

Ok, maybe the debate wouldnt end like that but you get the point. Vested interests and vote-bank politics are affecting a deal that will significantly help both consumers and the Indian Economy. The Govt. should mash out a deal that will the best share of the pie to the most no.of people who consume it, Ala, the consumers.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s