Have you been hearing and reading all the brouhaha over Foreign Direct Investment (FDI) in ‘multi-brand retail’? Wondering what’s the big deal? How and why did this put the parliament on hold for nine days? Though WalMart, the world’s largest retailer termed India’s decision as a “first important step”, the Government has put the issue on a back burner, bowing to pressure from the Opposition – both in the house and outside.
Here, an explanation
What is Retailing?
It is the interface between the producer and the individual consumer buying for personal consumption. A retailer is one who stocks the producer’s goods and sells it to the individual consumer, at a margin of profit. Retailing is the last link connecting the individual consumer with the manufacturing and distribution chain.
India’s Retail Industry
According to Delhi-based Centre for Policy Alternatives (CPAS), India’s retail sector is being hailed as one of the sunrise sectors in the economy. It contributes 14 per cent to the national Gross Domestic Product and importantly, employs 7 per cent of the total workforce of the country. It’s interesting to note that only agriculture employs more.
AT Kearney, the well-known international management consultancy, recently identified India as the ‘second most attractive retail destination’ globally from among thirty emergent markets. It has made India the cause of a good deal of excitement. The retail industry is divided into two sectors:
1. Organised: Organised retailing refers to trading activities undertaken by licensed retailers. That is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.
2. Unorganised: Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana (grocery) shops, owner manned general stores, convenience stores, and pavement vendors.
Retailing in India: FDI Policy
According to a 2006 Press Note issued by the Department of Industrial Policy and Promotion (DIPP) and consolidated Foreign Direct Investment (FDI) Policy issued in October 2010, here are the sector specific FDI guidelines:
a) FDI up to 100 per cent for cash and carry wholesale trading and export trading allowed under the automatic route;
b) FDI up to 51 per cent with prior government approval for ‘single-brand’ retailing, and
c) FDI is not permitted in ‘multi-brand’ retailing in India
What is the controversy about?
So far so good. But what’s the fight? Who gets affected? And how? Clearly, the two stakeholders whose future is unclear (and perhaps in danger) are the farmers and the retailers. Some important questions need to be asked and answered if FDI in retail is allowed.
How will it be leveraged by the agriculture sector? How will traditional retailers cope with the competition much larger in scale? Will the small scale retailers be able to match upto the sheer scale and advantages that come along with FDI? Will they be able to lure the consumers with as many choices?
We spoke to two grocery shop owners to see what they are thinking.
Rajendar Bansal, grocery wholesaler, Kundli, Ghaziabad, UP
“I don’t know anything about the FDI controversy. Hamare kaam pe koi farak nahi padta (it has no impact on my business). We source our products from a wholesale market, define our profit margins and go about our business of selling. I don’t care what a Big Bazaar or any other big store is offering.
We don’t even look at the printed rates on products. Humme bus itne pata hai ki hamara profit kitna hona chahiye (I am only bothered about our profit margins). Accordingly, we set our prices. Our customer base keeps changing. Bhagwaan ki daya se, roti pani chal raha hai (With God’s grace, my business is growing strong).”
Gagan Ahuja, mom and pop store owner, Sector 71, Mohali, Punjab
“You see, my business was not affected when domestic players like Big Bazaar or Spencer’s came. And now, if FDI is allowed and international players like WalMart also come, I am sure, it will be business as usual. The bigger grocery showrooms might feel some difference, but a ‘domestic’ shop such as mine is safe. In my shop, I work with a profit margin of 10-11 per cent and I don’t see that changing anytime soon.”
The verdict is clear as of now – no immediate action. The government and its policymakers are not looking at any changes, letting things take their own course. We’ll do the same.