Will 51% FDI in retail sector bring cheers to all classes of society?

[just4kix]

Currently this is a hot topic in the news today. The government has taken a very bold step and allowed foreign direct investment up to 51% in Indian retail sector. Predictably the government side benches are applauding the move stating "next gen reforms". Equally predictable has been the opinion from the opposition benches. The leftists/socialists were always opposed to such a move but BJP's opposition is surprising as it was promoting this move in 2003-4. But let us leave the politics aside and not comment on why which party is behaving as it is. What do you think of the move? Most forum members are from middle class and I think would be in support but let us give weightage to each section of the society.

There is already a slew of Indian retail chains such as Reliance Fresh, More, Spencers, Big Bazaar, Pantaloon, etc. These have not caused any significant dent on the local corner stores. So why should forign brands affect the market? In fact, some of the big brand retail stores are loosing out due to high running costs. Besides, logic tells me that the large stores will have to establish their shops mainly in the outskirts as there is hardly any space in the cities (where these shops are being allowed). The cost of driving to the shops and return may outweigh the savings achieved.

I think that all sections of the society will benefit as well as loose. My views are as under:

• The middlemen will be reduced if not totally eliminated.
• Farmers will be assured of a market.
• With logistics facilities such as cold storage, food waste can be reduced and even eliminated.
• Hoarding can be brough down. There will be better price control because there is potential of this.
• Isn't competition good? Does the swadesi adjective still cut the corners? Haven't we tried to be swadesi and failed. Here I would like you to read India Unbound by Gurucharan Das.
• Buyers will benefit from competition, reduced prices, availability and standardization. We may have a lot of consistency. For example, it may not be the case where we get real good quality onions todays and rotten/fungus ridden tomorrow.
• Giants such as Wal-Mart, Tesco, CarreFour, etc., are known to cut intake prices. So farmers may get less per produce.
• Giant retailers demand certain quality/standard of goods. For instance, KFC wants the chicken to weigh a minimum 1.25 kg. The small farmer may not reap any benefit unless he can meet the standard. So he will not get the market access and still sell goods at low prices because overall purchase prices have fallen.
• There has been opposition to giant retailers in the west of late.
• Large scale operations come with a lot of automation to cut down costs. So there may not be any significant employment generation. Are we repeating mistakes of the western nations?
• Where is the basic infrastructure (roads, electricity, land) to create the new infrastructure?
• 51% FDI allowed in retail sector does not mean that everyone will establish offices here tomorrow.

To summarize, I would say that on the whole I would welcome the foreign brands. Those who say that farmers will be further impoverished, local traders driven out of business, etc., I will reply,

"Are the things hunky-dory today? When the auto, telecom, electronics and other such sectors were opened, the inefficient were wiped out, there were more choices available to the consumer, waiting lists were eliminated, and so many other benefits were realized. So why not reforms here?"

 

[thebanik]

I am too completely in support of FDI. Infact when India opened its door to Globalisation in 1990s I do remember even then there was such an uproar but look how the life of Middle Class has improved because of that policy.

 

[avidyarthy]

The main issue is ... would be ... the direct access of cheap Chinese products into the Indian market. Yes, this exposure is still there and its pretty huge. Even Ganesh idols are known to be 'Made in China'. The worrisome aspect would be the huge distribution network the Walmarts would create to bundle off their procurements all over the country. Though, at the onset, they would be careful not to push these cheap imports, but that would be the end-result the moment they start looking at their bottomlines. Once they start off in this route, there would be no stopping them. Exactly the same thing transpired in the US, and what was the result? Their domestic industry took a major hit, with their small / medium industries shutting down.

Coming to think of it, can we afford this to happen here? Do we have any social security? Does the Government pay a small monthly package to the unemployed? Can anyone support this huge unemployment that would be created?

It is a notion that people here would start getting quality products at cheaper prices. Cheaper for whom ...... the upper middle class and the rich, maybe. Are they in any way hit by the current inflation? I guess not. Monthly household expenses (for a family of 4) would have risen from say Rs.40,000 to Rs.70,000. Big deal! When the monthly family income is Rs.1,50,000, why do they need to bother. Life goes on as usual for them.

So, the concern is primarily for the middle and lower-middle classes. There is virtually no escape for them other than to cut off the very basics of minimum protein/vitamin intake in their diets ... meat, fish, pulses, fruits etc. And the ones below poverty line .... God knows!

These MNCs would buy in bulk from the farmers. Yes, assured markets for them, but, at a price! That being, procurement at extreme low costs with the same being hived off at a fantastic margin to us 'goats'. Believe me, you guys are already viewing the stance of these political planners. When things start getting wrong, they look the other way! Attention is only given when all hell breaks loose.

The 'political' economists have only focussed on to the performance of the stock markets, and even put all the food-stuffs into the derivatives market. Food, in my opinion, should never have been earmarked for this.

It isn't lack of funding that has curtailed the developments in the post harvest storage sector. It is the INTENT and the will to execute such projects at the Government level. Just take a look at Gujarat and compare the developments there with the others. Compare the manpower quality one comes across there (at the Government level).

This current Government has had no planning capability. The ex-finance minister has been an utter failure. His work was limited to appeasing the alliance partners. Slowly, they have been drawn into the trap of the US strategic thinkers and now, there is no escape other than to comply. In other words, THEY have sold off this country!

A word of caution to the multi-brand retailers, in case they indeed set up 'serious' base here ... India is NOT Europe or USA. The current Government shall not be there to 'protect' you or your infrastructure for anything more than 18 months from now. 'Hunger' creates hell ... and hell combined with 'mob' could mean disaster!

 

[alpha1]

The indigenous industry and traders have actually done very little for India.
In fact looking at the top tax payers - and comparing Multinationals vs Local business families - we all know who is ever ready to evade duties and taxes.

 

[cmsajith]

Eventhough it is good as a customer (to an extend) it will have long term impact. There will not be any small scale sector \ business in India and the market will be controlled by some specific vendors. Now even Govt can interfere by opening small shops (food / groceries / medical) to curb the exploitation done by the middle men in the open market. If the market is controlled by big corporate giants even the govt will have to be mute spectators. Most imp thing is the L2 layer (middlemen) will have a significant growth leaving \ squeezing the L1 (the local source like farmers), recently I saw a news that the coconut farmers in kerala are getting only 3Rs eventhough the selling price is 10-15Rs in the market, who is eating the money, the L2.

 

[Hiten]

Will 51% FDI in retail sector bring cheers to all classes of society?

Big companies dont think small terms. They plan for atleast 5 to 10 years. First they introduce themself. (they loose money) Then they establish themself. (loose some money) Then they make themselves a necessity (break even) Then they remove competition (Make BIG money). We have a huge population and big Corporates know this. Corporates are interested in money. They are not here to give fantastic products or services. There is difference between quality of products sold in western countries and third world countries. With Big Corporates and Chinese products, we would/are destroying whatever manufacturing capacity we have. We are not software giants. We only provide software services. We have no Software products like Windows/Photoshop/Google. China is soon catching up with us in software. We are destroying our farmers. So there would not be any hope in future of exporting grain/food products. Instead we import them even today. So What would we sell. My gujju genes tells me when doing business revenues should come to us not other way around. So unless we make good products/Services or open retail store in USA, India looses.

They themself have trouble in their own countries. Occupy Wall Street - Wikipedia, the free encyclopedia
Impatient accelerated greed will make rich people richer and poor poorer.

Regards

 

[kaushik]

I respect the sentiments ....
there will be cons evrywhere but the positives will overweigh
* More indian people will get employed and benefited
*Better services for manufactured goods delivery will help growing business and reduce unemployment .
* i will not talk on the food and grocery , i am sure there will be huge posts coming
*Better services will make cut lose the sluggish unprofessional vendors or reduce random behavior of the online shops

I have had real bad experience the sites like letsbuy ,Hs18,yebhi(appliances) and recently PICSQUARE in terms of delivery of goods or false product listings .

PICSQUARE is holding a sum for 7days , w/o the prints delivery .
yebhi had unavailable appliance order , delivered after 2 months .
HS10 held payment for 2 months w/o any feedback and finally cancelled .

99% of things i ordered abroad were delivered on time or sellers did all the things needed to address my issues
* Death of low Q items sale made by big names here , my long term dream
one example is WIPRO made chinese power rails ... pure trash items were sold by wipro
*huge number of classy and VFM items like the IKEA furniture and lights
*struggle for small DIY items will end like RCA/cables etc

 

[sound and music]

Below is a critical perspective on this issue from Shekar Swamy, Group CEO of R K SWAMY HANSA - one of Indias leading advertising and marketing services groups.

Link:

http://www.madhyam.org.in/admin/tender/Shekar FDI.htm

 

[just4kix]

Chinese made goods are being imported and sold in India even now as avidyarthi pointed out. Not just idols and picture frames of Gods, it expands to construction material, garments, toys, many FMCG's, automobile components, various consumables, etc. So a Wal-Mart will accelerate the process. But can it be avoided just because a mega-retail chain is not present in India?

Again on the demise of local manufacturing, I somewhat disagree with avidyarthi - US/Europe manufacturing industries were killed because they shifted base to China. The local industries also acquired a lot of "fat" and became too costly to sustain. The result was a search for cheaper manufacturing facilities. So whatever is sold in Wal-Mart, Target, etc., is bound to be China made.

Agriculture is our main sector still. We cannot yet boast of world class indigenous manufacturing. Many global manufacturing companies have already set shop in India. The retail sector is unorganized. How does one ensure that we have best of both?

 

[Thad E Ginathom]

Just this: a country that has already been looted and sucked dry by a foreign power and its commercial interests ought to know better.

Companies like Walmart will make the East India Company look like a bunch of amateurs. Globalisation is a euphemism --- for getting owned by USA.

And, Damn... I hadn't even begun to think of China

 

[kaushik]

Chinese made goods are being imported and sold in India even now as avidyarthi pointed out. Not just idols and picture frames of Gods, it expands to construction material, garments, toys, many FMCG's, automobile components, various consumables, etc. So a Wal-Mart will accelerate the process. But can it be avoided just because a mega-retail chain is not present in India?

?

The US ,UK and even thai ,sPore also have a same scene so whats the big deal ?

why wait for the indian co to learn what is classy home decor / what is good looking and then learn that they cant be made w/o some machines and then find that those machines to be imported and govt have no policy to help !

 

[doors666]

Why 51%. Why give control of our economy to others? If walmart, ikea etc wish to open stores, whats preventing them from owning 49% and opening stores here? If they choose not to be a minority partner, well, then get lost.

There will not be any employment generation. For every store opened that creates 100 jobs, it removes 200. You drive a mom and pop store out of business and make them employees on your shop floor working on minimum wages.

The logic given with opening of economy and better cars etc being available doesnt hold good with retail. What will it give you, better wheat, better dal? no. Most of the foreign goods are already available anyway. Dont like cinthol, go buy dove. Except that now you are no longer buying the same stuff from an indian, but from an american.

Even indian retail chains are looting the farmers and selling at exorbitant prices. Walmart is know to goto small towns also, sell at low prices, drive the locals out of business and then hike the prices. They practically have wiped out towns in US. New york city doesnt have a single wal mart, it doesnt allow them.

A country that cant feed its own people should not prioritize its policies based on the needs of home decor or rca plugs or cars. Anyway, how will opening of retail help with this? I liked the policy of hardware chips yes, potato chips no.

And our beloved leaders have the gall to say that this will revive the economy. this is going to sink our economy, in our lifetimes (of course they dont care, it wont be in their lifetimes).

I wonder how much money congress has made out of this. they dont do anything till there is something in it for them. Now a days the scams are of the scale of lakhs of crores. I remember there was a time when governments used to fall for paltry sums like 65 crores.

 

[arnprasad]

Here is my take starting with some history:

(1) We should not blame the British for our woes. If you look at the total number of people the British killed in their 350 years of existence vs total number of people killed in riots and clashes post independence - you get the answer. They being outsiders and occupiers had some reason to kills us - what reason do we have to kill ourselves?

(2) Please remember before the British, there was no such called INDIA - we had 1-2 big kingdoms and plenty of small ones organized by regions and languages - hence we need to be grateful to them to have created our country. And yeah - we may have lost pakistan and bangladesh - what about arunachal, andaman, lakshwadeep and few NE states? these were never part of India.

(3) And most importantly please remember prior to British we were ruled by descendants of barbaric mongolians - Timur and party anyone? compare the number of people converted to Christianity in their 350 years vs number of people converted to other religions since 11th century? And imagine the demographics of India if these rulers were to continue for another 200 years?

(4) British were occupiers and also one of their primary reasons for being here was trade and commerce and they at least helped India grow in all areas - we got railways much before other countries. I havent done any research but am sure we got telecommunications and other modern inventions earlier that other countries

(5) They at least tried to get rid of many unwanted customs in our great country and promoted equality.

Anyways coming back to current day - here is what FDI might mean to us.

(1) I do not see the entry of Walmart or Tesco create anything revolutionary. I guess that transition of going from a 200 sq foot Kirana to a 20000 sq foot airconditioned kirana already happened a decade back due to entry of Big Bazaar and company.

(2) They will cater only to a niche audience who can afford to drive to their massive stores. Please note that outside of their native countries most of these giants suffer losses. Asda isnt doing that well for Walmart in UK, Tesco is struggling in US.....etc. If they plan smaller stores due to real estate issues, then the whole charm of them being here is lost

(3) They already procure thousands of crores of stuff from India and by setting up the right procurement strategy including cold storage - they will procure even higher for their overseas stores

(4) A big part of our farm produce is not upto the international quality standards - they will get the right technology like Pepsi teaching farmers how to produce the right alooos for their chips

(5) We will see more processing of foods at the source -this will eliminate the losses - for example farmers in Karnataka dump their tomatoes coz they dont even get 2 rupees a kilo - these can easily be processed at source and we will get more value added products

(6) If inefficiencies are built in our current procurement systems - its only fair that by cutting off middlemen we get more affordable end products.

(7) There will be more affordable niche product type stores like IKEA for furniture.

(8) for me - more than brick and mortar stores - I am waiting for e-commerce to take off in a big way - I dont think in 2012 we are anywhere near where US was in 1998 - if Amazon comes to India either on its own or via Junglee - we will see real competition.

(9) These big stores at 5-10 kms apart from each other will be no competition and will not lead to lower prices. Only e-commerce will ensure that these stores sell cheaply.

(10) regarding farmers getting a raw deal - firstly for few of their products - the government has MSP - so they will rather sell to them than the stores in case their prices are not right. Also more stores will ensure competition amongst whole sale buyers and will ensure fair price to farmers and more importantly assured buyers will ensure that the farmers will plant the right crop

(11) Given the real estate the way it is in India - plus the price of petrol - I really do not see family going to these faraway stores on two wheelers as logistics will be difficult. Similarly driving 10 kms to a store one way will also discourage car owners - if you are buying stuff worth say 3-4K every week on groceries - you dont want to spent 100-150 rupees petrol to get them - as even their discounts wont cover this cost. And also your neighbourhood kirana will try and cut down his prices to an extent to retain his business.

(12) And also do not forget - in our great country only people whose income gets TDS'd (aka salaried class and few other professionals) pay taxes. Most of the others including the business class - hardly declare their total income. Due to entry of these big stores - at least there will be some honesty and increase in tax collection.

(13) FDI would mean they would invest in India stores with phoren money and their burden on India banks will be limited. IF they make losses - their investment will get reduce - not the NPAs of our banks.

(14) Today if we are importing all sorts of rubbish from China - it is the government's fault - why is the list of products we import not limited?

So overall I welcome any investment in any sector - when we go there and steal their jobs just coz we can speak English better than the Chinese and every one else and are cheap on the salary front - they too should be given a chance to try their luck here.

I really dont care about Walmarts and Tescos - I dont think will change my life. I am definitely looking forward to IKEA and E-commerce like Amazon - they will certainly make some difference to me.:clapping::clapping::clapping::clapping:

 

[doors666]

I really dont care about Walmarts and Tescos - I dont think will change my life. I am definitely looking forward to IKEA and E-commerce like Amazon - they will certainly make some difference to me.:clapping::clapping::clapping::clapping:

I dont know much about ikea, but dont they sell their own stuff, in which case, they could already open a store if they wanted.

Most of ikea stuff is made with particle board (where ever relevant), its not durable. i wouldnt touch that stuff with a ten foot pole, its absolute pits.

 

[avidyarthy]

Excellent @ arnprasad. Very well written!

Quite true, most of it, what you have written. The only worry I have is from the China front. The price conscious race we are, most would fall prey to the slickly finished half-priced Chinese imports. I, personally am more worried for the have-nots of my country. For every 100 jobs created by the multibrand retail-route, 1000 would lose their only source of income.

As far as I am concerned, well, I could choose not to go to a Walmart, as I to this day have avoided purchasing anything from a mall. Only visit there for watching movies (if I ever ... family does,of course) in multiplexes or sometimes to kill time @ birdwatching.

So, it is the 'net' unemployed in our domain that pinches. Most of us ain't thick-skinned as our current politicians who give a blind eye to an underlying suffering.

If you analyse carefully, India should not have any issues with SINGLE BRAND retail outlets coming up all over. The size of investment / operation / influence has to be limited. That business should never have the leverage to 'control' our lives. This is exactly what would happen in case a blatantly big multibrand entity opens up. Like someone posted earlier ... would take losses to run the locals out of business, and then make a killing in an empty field.

 

[arnprasad]

I dont know much about ikea, but dont they sell their own stuff, in which case, they could already open a store if they wanted.

Most of ikea stuff is made with particle board (where ever relevant), its not durable. i wouldnt touch that stuff with a ten foot pole, its absolute pits.

Well - not many of us can afford Teak wood - unless you have uncles in the forest department who can get it on the sly - for most of Indians - at least Ikea will ensure we get good looking, practical furniture. They source big time from India - mostly on the textile front I think coz whenever I Check out a bedsheet I see its made in India - maybe this time around - they will impart trainings to our artisans so that they can meet their 30% local sourcing requirements and in the process - they might even export furniture out of India. And yeah - they got some regulations and ethics and stuff to ensure they dont indiscriminately fell the forests. May be they will help growing forests/trees on wasteland

 

[gopib]

Lots of noise....let us DIY folks......

 

[cmsajith]

I dont know much about ikea, but dont they sell their own stuff, in which case, they could already open a store if they wanted.

Most of ikea stuff is made with particle board (where ever relevant), its not durable. i wouldnt touch that stuff with a ten foot pole, its absolute pits.

"Use and Throw" concept came here because of the globalization and the companies are forcing it also. Almost all the ikea products are of this category and of no use if reliability and longevity is the criteria.

 

[arnprasad]

Excellent @ arnprasad. Very well written!

If you analyse carefully, India should not have any issues with SINGLE BRAND retail outlets coming up all over. The size of investment / operation / influence has to be limited. That business should never have the leverage to 'control' our lives. This is exactly what would happen in case a blatantly big multibrand entity opens up. Like someone posted earlier ... would take losses to run the locals out of business, and then make a killing in an empty field.

Thanks. Same is the case with me. Last year when the Tatas opened their Star Bazar 5 kms from my house (its a mini Tesco -they sell unsold Tesco stuff here) - first one year it was fun to go there - its huge - my kids run around carefree and all that. Then I realized @ 12 kms - its close to 100 sbucks of petrol and I also see that 90% of the stuff is sold at MRP - and of course since you go there - 30-40% of the stuff you pick up is unplanned unwanted things just cos they are being discounted - now I stopped going there and go to a dmart instead which is walking distance plus they give atleast 2% discount on all items. Moral of the story - Big Bazar, Reliance mega stores and Star bazar may be the biggest stores currently - but they sell most of their stuff at MRP - people will realize this sooner or later and the initial euphoria of going to a air conditioned mall will dry out.

 

[arnprasad]

@Kix - thx for the post. I am getting some "thanks" again - wondering how many "thanks" it will take to go to two small green squares below my statistics:lol: