100 PER CENT FDI IN MULTI BRAND RETAIL

The Indian retail sector is abuzz with the news of the proposal for 100 per cent FDI in multi brand retail, which might get the government backing. What will be the fallouts and implications of this gargantuan decision, if it comes through. Foreign Direct Investment under the Industrial Policy 1991 and thereafter under different Foreign Trade Policies is being allowed in different sectors of the economy in different proportion under either the Government route or Automatic Route. In Retailing, presently 51 per cent FDI is allowed in single brand retail through the Government Approval route while 100 per cent FDI is allowed in the cash-and-carry (wholesale) formats under the Automatic route. Under the Government Approval route, proposal for FDI in Single Brand Product Retailing are received in the Department of Industrial Policy and Promotion, Ministry of Commerce & Industry. Automatic route dispenses with the need of multiple approvals from Government and/or regulatory agencies (Government of India or the RBI). Investors are required only to notify the concerned Regional offices of RBI within 30 days of receipt of inward remittances and file required documents with that office within 30 days of the issue of shares to foreign investors.

ADVANTAGES
A growing and mushrooming retail sector means that its contribution to GDP would grow. It would thus help in expanding the economy, generate employment and result in more tax income. The throwing-open of doors to Foreign Direct Investment (FDI) will certainly spur the GDP growth rate and increase the per capita income, but how will the local Indian retailers deal with it. According to a paper on FDI in retail that is being prepared by the Department of Indian Policy and Promotion (DIPP), it will be compulsory for the multi brand foreign retailers to create a backend cash and carry store for small shopkeepers (retailers), which will benefit them on the grounds of sourcing. The foreign companies in multi brands will also have to follow stringent rules on local sourcing requirements and make mandatory investments in local supply chain. The big shots in the industry like Adi Godrej, Chairman, Godrej Group of Industries and B. Nagesh, Vice Chairman, Hyper city are affirmative about the proposal. Even Spencer Retail Ltd advocates the proposal. The proposed initiative on 100 per cent FDI is a welcome move. It will be immensely beneficial for the government from a revenue point of view, for the producers for realizations and for the customers in terms of more competitive pricing. Its a win-win all around, says Vineet Kapila, President, Spencer's Retail Ltd. Shopper's Stop finds the proposal encouraging. It beleives, if implemented, it can be utilized to boost exports. Cent per cent FDI in multi brand retail will be a big booster for international

retailers and encourage them to enter India. This will improve the quality of merchandise as well as improve the product availability and lower prices. Moreover, it will be a win-win situation for the customers. It can also be harnessed, to boost exports out of India through Clear Clauses of Investments in Sourcing & Exports out of India. states Govind Shrikhande -Customer Care Associate, President and CEO, Shopper's Stop Limited.

DISADVANTAGES
Political bigwigs in the opposition are in completely different boats than the big Indian retail players regarding the proposal. They beg to differ from the advocates of this proposal. Being concerned about the interest of a common man (consumer) they are skeptical about the idea. They think the move may not work in favour of Indian consumers as in India they come from various income levels. Arjun Munda, National General Secretary, BJP feels that there is no value in it for the poor (common) man and that the foreign players will totally monopolize and grasp the market, if the proposition falls through. D. Raja, National Secretary, CPI also feels that this proposition is not in the interest of the traditional retailers in India, inspite of the compulsory backend cash and carry store requirement that has been put down in the paper by DIPP.

On the fence
The suggestions for the proposed 100 per cent FDI in multi brand retail, however, seems to be in consistency with the UPA governments emphasis on technology upgradation and flow of

investments into the retail sector, due to the strict rules on local supply chain investments and sourcing. All that remains to be seen, now, is whether the government will pass this regulation and the bigger question still; whether it will give root to a comprehensive growth both for the country and the industry. Time will tell! Though a lot has been said and written about FDI in multi-brand retail. However, considering the raging food inflation and the amount of wastage of farm produce that the country has witnessed of late, it makes sense to bring up the issue once again. Moreover, the government is also actively doing the research and analysis regarding its benefits. It is learnt that the reports of the research conducted by the government on this whole issue reveals that opening up of FDI in multi brand retail would not only help the farmers but would also keep the price line in check. Lets explore how?

MAJOR ISSUES OF CONCERN

The subject has caught everyones attention in the retail industry because there are certain sets of issues among the small and medium segment retailers in the country. Unemployment is already a problem and with global giants like Wal-Mart, Tesco, Carrefour all lined to make their entry, there is a notion in peoples mind that the problem will become even bigger. Small retailers and the self employed people who run these popular mom & pop stores are the largest source of employment in rural, semi rural and urban areas. They feel that the big retailers would consume their pie leaving them with nothing. And political biggies like BJP have stated that around 10 crore small and

medium enterprise will have to bear the brunt if government opens up the FDI in multi brand retail. Unlike FDI in single brand retailing which pertains to brand loyal and a relatively small high income clientele, FDI in multibrand retailing would have direct impact on a vast spectrum of population and thus a sensitive issue. Left alone foreign capital will seek ways through which it can only multiply itself, and unthinking application of capital for profit, given our peculiar socio-economic conditions, may spell doom and deepen the hiatus between the rich and the poor. Thus the proliferation of foreign capital into multi-brand retailing needs to be anchored in such a way that it results in a win-win situation for India. This can be done by integrating into the rules and regulations for FDI in multi-brand retailing certain inbuilt safety valves. For example FDI in multi brand retailing can be allowed in a calibrated manner with social safeguards so that the effect of possible labor dislocation can be analyzed and policy fine tuned accordingly. To ensure that the foreign investors make a genuine contribution to the development of infrastructure and logistics, it can be stipulated that a percentage of FDI should be spent towards building up of back end infrastructure, logistics or agro processing units. One of the justifications for introducing FDI in multibrand retailing is to transform the poverty stricken and stagnating rural sphere into a forward moving and prosperous rural sphere. To actualize this goal it can be stipulated that at least 50% of the jobs in the retail outlet should be reserved for rural youth and that a certain amount of farm produce be procured from the poor farmers. Similarly to develop our small and medium enterprise, it can also be stipulated that a minimum percentage of manufactured products be sourced from the SME sector in India. Public Distribution System is still in many ways the life line of the

people living below the poverty line. To ensure that the system is not weakened the government may reserve the right to procure a certain amount of food grains for replenishing the buffer. The government may also put in place an exclusive regulatory framework to protect the interest of small retailers. It will ensure that the retailing giants do resort to predatory pricing or acquire monopolistic tendencies. Besides, the government and RBI need to evolve suitable policies to enable the retailers in the unorganized sector to expand and improve their efficiencies

CAP OR NO CAP!
The government has been acting cautiously on the whole issue and has been looking to put some caps on FDI along with other regulations that would support the small and medium manufacturers. Retail giants like Rajan Mittal, Vice Chairman and MD of Bharti Enterprises, do not want any kind of cap in multi brand retailing. They feel that the competition is very healthy. By putting caps and laying all kinds of conditions on employment, etc, government curbs the freedom of the entire industry. However, Raj Jain, MD and CEO, Bharti Walmart avers that although they do not want any cap, they understand that the government has other compulsions and hence requires taking a calibrated approach and they fully support it. He further adds, Whatever the government wants, we are fine with it because we are here for a long term. We want to work with the government in this area and want to demonstrate the benefits of the FDI in multi-brand retailing to the government, and to the consumer as a whole.

There have been reports that the government wants a mandatory amount to be invested in the backend. Jain feels, Nobody can do their business in retail, without investing in the backend. So if the government is keeping some rules and regulations on this, its good and we all support this. Any serious retailer will never hesitate in investing on the backend. News has also been doing the rounds that the government wants a reservation of 50 per cent for the rural youth in the cash and carry business on which Mittal says, As long as the unemployed and underpreviliged youth including the rural is concerned, it is fine with us, and is happening from our side. He refers to the students at the Bharti Walmart training centre which the company has opened by entering into a public-private partnership with the Delhi government and adds, They are all underprivileged youth, who never got an opportunity to go to college or to go in for higher education. And if we see, the business of organised retail is the only place, where for the first time these youths get employment opportunity and not only that, they have been given the development training throughout their career. Training and development of the youth are the integral part of the retail and we are proud of understanding it and implementing the same.

THREAT TO TRADITIONAL RETAILERS!

Organised retailing is already present in India. Any individual or any company can do it and many people are doing it. The issue here should not be what will be the effect of FDI, the issue here should be, whether or not the organised retailing is good for our country.

Jain and Mittal believe that there is no threat to small retailers. Ultimately, a local pushcart vendor will be housewives first choice when it comes to buying vegetables and fruits everyday. No modern retail would provide services at the doorstep. Modern trade is good for shopping on a weekly basis and to fill up the stock but at the end of the day one will go to a kirana store for ones small and daily requirements. If we look at China, where FDI was permitted in organised retailing some 20 years back, still 80 per cent of the small retailers are present in the country. Since people have no idea of this kind of concept here, I can understand their fear, but at the same time they are unnecessary, says Jain. Bharti Walmart which is present in Punjab maintains that they have been going directly to the farming community there and there is empirical evidence that shows that whenever they have been to farmers directly or even the small manufacturers, the farmers and manufacturers have benefited and so have the consumers. Talking from consumers viewpoint, getting global players in the country will bring in the competition because of which, the prices will go down and will help control the inflation rate!