Opportunities for young generation in retail sector FDI in retail sector has been a recent topic of discussion for

our policy makers . This topic is drawing attention from political parties, national unions and re tail industry think tanks. Most of the MBA entrance test and GD requires a good grip on current affair, and FDI being a hot topic of discussion recently, we bel ieve MBA aspirants should be well equipped with the basics of the whole story. T his article is intended to enlighten students to understand what is the retail i ndustry, FDI and why our countrys best minds are debating on FDI in retail sector ? A quick glance at Indias retail sector As per definition adopted by Indian government its a sale of finished or final pr oduct to the consumers. And not the intermediate goods which are further process ed before sale (whole sale market). Thus the retail market connects the producer of product (through a value chain) with the ultimate consumer of the product. Of course it involves an act of selli ng at a profit. Primarily, the retail market in India is divided in 2 sections organised and uno rganised retail. Organised retail is operated by licensed retailers who have reg istered sales tax, income tax etc as per the government protocol for businesses. Whereas the unorganised section of the retail market refers to traditional lo w cost operating model owned and managed by an individuals or their family (e.g. local general store kirana, pan/ beedi shop, pavement vendors). The Indian retail sector is highly fragmented with close to 97% businesses is un organised retail. This section is main source of income for millions in India an d connects closely with agricultural produce by farmers. It has a very high pene tration in rural India with a contribution of up to 10% of GDP. What is FDI? FDI is an acronym to Foreign Direct Investment it is a form of investment by forei gn entities in local market. India accounts for the equity capital investment in local companies as FDI. And other forms of investment/ flow of money is account ed separately like bringing equipment/ expertise from strategic partner abroad i s accounted under import trade and not FDI (unlike other countries like China). Reserve Bank of India (RBI) and Foreign Investment Promotion Board (FIPB) are 2 key government entities who control and monitor FDI in India. FDI in general is allowed in India except few sectors which are been controlled by government and a prior approval from RBI and FIPB is needed to carry out business in India. Current state of FDI in retail 1. FDI is allowed upto 100% in cash and carry wholesale trading and export e.g. Walmart has invested with Bharti in wholesale cash and carry business. 2. FDI upto 51% with prior approval from government in retail sale of single bran d products. 3. FDI not allowed in multi-brand retail products. [The recent political debate is related to multi-brand retail sector] So what is the debate about? 1. Infrastructure: Currently India lacks optimal investment in the infrastructur e and logistics of the retail value chain. This has led to inefficiencies in the market and hence improper retail market mechanism. For example, India is the se cond largest producer of fruits and vegetable, about 180 million metric ton, but theres limited cold-chain infrastructure to store and distribute fruits and vege table. The current capacity, mostly used for potato storage, is approximately 24 million metric ton leading to a loss of perishable agro products and inability to cover wider distribution area. This also creates a seasonal nature in the pro duct which means produce has an overall short period of availability. In a nutsh ell, it leads to a high value loss for Indian farmers in quality and quantity of fruit and vegetable. Experts believe that if a properly regulated and well thought FDI policy is brou ght in Indian retail sector, it could lead to superior infrastructure for the re tail value chain.

2. Lack of transparency in retail value chain: There are various irregularities in the intermediaries (like mandi) and a total lack of transparency on how the m arket decides price of farmers produce. The wholesale regulated market, governed by state policies, is a prey of corruption and lacks transparency. It has develo ped monopolistic characters undermining the fair market pricing based on demand/ supply and quality of produce. Studies in past have quoted that Indian farmers on an average receive 33% of the final price paid by the ultimate consumer, unli ke 66% in countries where retail sector is totally organised. Its easy to then conclude that FDI in retail sector would lead to bringing much n eeded transparency in intermediaries and would lead to more fair play in the val ue chain. Primarily for the reason that organised retail chains would invest in enhancing the supply chain and competing on price in the market. 3. Inadequate access of latest technologies: Our home grown small and medium siz ed enterprises (SME), do not fully exploit latest technology in production syste m and other business operations like marketing, distribution etc, mostly because they lack investment and have a limited local reach. Hence unable to grow (orga nically or inorganically via consolidation) and build big brands. One of the conditions implied on FDI in retail (still under discussion) is to so urce at least 30% of total produces from SMEs. Experts believe that FDI would in centivise SMEs to enhance the quality of products and gain efficiencies by utili zing latest technology and management practices. There are various for and against discussion for FDI in retail sector due to which g overnment is not able build a consensus on this. Currently, FDI in retail has be en kept on hold unless a majority in the parliament is achieved through construc tive debate. We at Gradebook.in take this in an entirely different perspective and want to ev aluate the prospects for our young generation in involving in this sector. Speci ally, how India can utilise its current potential in building the much wanted fu ture retail sector which is valuable for both the end consumers and the supplier s and has a fair trade throughout the value chain. Opportunities for young generation in retail sector December 3, 2011 Tweet Do we really need foreign investment to transform our retail sector? Well, thats a matter of debate and we can keep discussing pros and cons on FDI in retail market. In a separate article earlier we briefly discussed the current r etail market in India and FDI to update our students on current affair [Current Affair for Students: FDI in Retail]. In this article we are presenting our view on opportunities for our young generation even if the FDI is not opened in reta il sector. If you have read our previous article on this topic [Current Affair for Students : FDI in Retail], you would recall that currently, Indian retail sector has prob lems mainly relating to the infrastructure (like cold-storage chain, logistic et c), transparency in intermediary organisations (like local wholesale institutes also known asmandi in Hindi) and inadequate use of modern technologies and manag ement practices by our small and medium enterprises (SME) hence unable to produc e best quality products. The retail market, specially the unorganised section, i s highly fragmented. We believe that India has all that is needed to bring improvements in the retail sector and to transform it to an efficient market -enhancing the overall global competitiveness of home grown businesses, the organic way. Currently, the retai l sector has huge potential to grow and consolidate. In recent years the purchasing power of Indian consumers has drastically increas ed, making India as one of the most favourable consumer markets in the world. Re tail sector being the most lucrative it has a huge potential for investors. But the million dollar question is what are the options for our policy makers to bri ng the organic reforms in this sector? The answer lies broadly in two major areas 1) Options for research and study and 2) Conducive environment for entrepreneurs. It is no different from all other i ndustries where India has developed global competitive edge like IT services.

1. Utilize centre of excellence to further the study of practical use of economi cal, technological and management science in retail industry. a. Indian Institute of Management (IIMs): Though we have seen an exponential inc rease in retail management professional in past decade but most of them speciali se in the demand management and distribution of final products rather than sourc ing and rural supply chain management. In addition to this, our supply chain and logistics management needs innovation. Most of the problems lie in sourcing fro m rural value chain and fair trade throughout the chain. One of the most critica l and deeply affecting problems in current retails sector is the way intermediar ies (like local wholesale societies and organisations mandis) operate which larg ely undermines the market mechanism. IIMs and other top b-schools, being the cen tre of excellence for the management studies in India, should take more concrete steps in bringing such subject in focus and provide specialisation in these are as. b. Indian Institute of Technologies (IITs): The current issue of retail sector o n not employing latest technology in the supply chain and logistic management li ke storage and transport of goods, small and medium sized enterprises (SMEs) pro ducing consumer products etc can be addressed if India innovates cost effective alternatives. IITs, being the most reputed in the country for research and centr e of excellence for science and technology in India, is the most favourable plac e to incentivise students to go for such studies. Government and the institutes can fund more research in this area. Enterprises already in the retail sector sp ecially big retail chains like reliance fresh and food world can also engage wit h the institutes to fund and promote such research. 2. More retail focussed incubation centres: Entrepreneurs are the heart of devel oping nation, and we believe more and more incubation centres should be setup ne ar centre of excellence like IITs and IIMs so that the theory finds a practical way of implementation. This will help our young brains to bring breakthrough inn ovation in the retail market. In addition to this, there should be more conduciv e environment provided by government for entrepreneurs to invest more time and e nergy in this sector like tax benefits, shared risk and reward model. Overall, we are emphasizing that transformation in the Indian retail sector is i nevitable and our Government should utilise this as an opportunity to build stro ng competitive advantage of the country by building it organically. Hopefully, t he organic way will open up new avenues for students who want to build their car eer in this sector.