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Retail FDI Decision Faces Strong Opposition

Posted: Monday, 05 December 2011 12:19

Retail FDI Decision Faces Strong Opposition

Dec 05 : The government decision announced on November 24 to allow participation by the foreign retail chains like Wal-Mart, Tesco and Carrefour and increase of share to 100% for single brand retail, has run into rough weather with a strong political opposition threatening to derail, despite government’s attempts to convince its desirability for the sagging economy and inflation and clarifying that it would not affect the small mom and pop stores because of the inbuilt safeguards, with a Statement by one of its constituents that the decision would be put on hold.

Allies in the current coalition government including Trinamool Congress and several members of their own Congress party have expressed a strong disagreement while the opposition has been gunning for the ruling party with the parliament paralyzed over the contentious issue since it opened for the winter session last week. ‘India's government is fooling the country about the benefits of foreign supermarkets, L.K. Advani the aging leader of the opposition party BJP reportedly said on Saturday at the HT Summit in Delhi.

"Wal-Mart may be fine for the West but Wal-Mart does not serve us," L.K. Advani, said. "We should not be envious of Wal-Mart, the former president of the BJP and leader of the opposition from 2004 to 2009, he added. Curiously, this is in sharp contrast to its free-economy stand and had pushed for this concept in 2004 when in power. "I see no reason why the government decided on FDI in retail knowing full well that a large section of people will get affected," added the politician who has often been tipped as the Prime Ministerial candidate of BJP if it wines the next general elections in 2014.

The government has rejected all demands to roll back the policy though it is likely that the implementation through the gazette may be delayed. The government is dependent on allies like Trinamool Congress but does not face any immediate threat of losing power as the leader Mamata Banerjee says it would not leave the coalition. Prime Minister Manmohan Singh says rescinding the policy will hurt the country’s image with foreign investors as Asia's third-largest economy shows signs of slowing. With the sagging Indian economy languishing currently at 6.9%, economists feel that the domestic capital may not be enough to revive it and bring it back to 9%+ that it had reached a few years ago.

According to the commerce minister Anand Sharma, about 10 million jobs are expected to be created because of the new policy, 6 millions to be in the logistics which is the biggest strength of the multinational chains from the crops to the customer.

Rubbishing the claims of the opposition that the foreign players may use predatory policies to drive out the small retailers, Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission and speaking at the Hindustan Times Summit said that China had liberalized 20 years ago and no such action had been seen there. "Relaxed FDI norms will bring in the much needed capital that will help create efficiency in the supply chain thereby reducing wastage in perishable products such as fruits and vegetables," he said, adding that there was no truth in the argument that the farmers would be cheated by the foreign players.

"FDI in retail will not create any import bias in purchases and procurements by retail companies," Ahluwalia said according to HT. "In fact, with increased foreign investment there will be rapid modernization of the entire supply chain."

The reformist move to allow global chains like Wal-Mart (USA), Tesco (UK) and Carrefour (France) to own up to 51 percent of retail and allow foreign companies to fully own single-brand retail operations has the support of farmers who feel they will get better deal by cutting out the middle-men estimated at 5 million and the strong segment opposing the reforms. According to a farmers’ association, produce that gives Rs.100 to the farmer costs Rs.400 in the hands of the consumer.

"Local retailers have been content thinking small and doing little. It's time to change that mindset by opening up to FDI in retail," according to an editorial today in ET.

The government has announced several stringent conditions like a minimum investment of $100 million and making it mandatory to buy a minimum of 30% from the SMEs. The States also have the authority not to allow these chains to set up shop. States like UP, Bihar and West Bengal have already said no to the proposed policy which is likely to get delayed but would be here to stay, with the government not willing to budge an inch.
Meanwhile, a general strike had been called for December 1 and was considered a success. Another one is slated for December 12-13 to keep on pushing the protest.

India has a total retail market of $450 billion and the foreign chains stagnating in their own countries are eyeing with lusty eyes new markets like India for expansion. The opposition also feels it may be an act akin to allowing the East India Company to enter India about 250 years ago, that resulted in the British ruling India till 1947. Reformists of course, pooh pooh the idea of economic colonization.

Supermarkets and Wine

Setting up of the supermarket chains like Wal-Mart, Tesco and Carrefour will help the wine retail market in India. They have wine-especially Tesco which dominates the UK supermarket industry, as an important part of the portfolio. Hopefully, they will start marketing soon after they start their operations in India and like other food products are expected to help bring the prices down besides improving the storage facilities. For a related recent article on how the prices can be customer-friendly by a chain like, Tesco, click

Contrary to oppositions’ claim that the move is a knee-jerk reaction to the recent inflation and slowing down of economy, the government had undertaken a massive debate for almost 4 years and unless some scam may come out of the closet in future years, the government think tanks have been working over the issue looking at various issues-including the possible political fallout.

However, it would appear that the government has failed to convince their own cadre or the allies on the benefits and the strong opposition has made the government possibly stall the decision for a while or dilute it some more to keep the opposition demands in mind. Trinamool Congress chairperson today announced that the Finance Minister Mr. Pranab Mukherjee had agreed to postpone the decision while he has said that the decision would be announced on Wednesday when the parliament is reconvened. Meanwhile, the opposition has been boycotting the parliament on the issue.

For a few of the recent articles, please visit:

FDI Retail Sweet Dream Ends

Subhash Arora
December 3, 2011

Comments:

 

Subhash Arora Says:

Chris, I think when you talk of MRP, you are concerned about wine and liquor where retailers are NOT allowed to sell below MRP in many states-like Delhi. Otherwise, there is no binding on the retailer to stick to MRP. In fact, stores like Big Bazar have been thriving on giving deals to the customers and selling at less than MRP. No doubt, there are several pluses in the modernisation through FDI but the government has been dilly-dallying around it and did not convey the message to the public or communicate its benefits with the political opposition. In any case, it looks like it will be on hold for a while-and as you rightly said the poor farmer is the biggest loser <and also the wine industry if I may add!> Subhash

Posted @ December 07, 2011 11:08

 

Chris Pohl Says:

Hi Subhash.FDI in Retail = Fools Deliberate Ill Logic. How nice, and good it would be for the country if right politics could be made and popular politics would be put aside! Fooling the Masses will sure secure votes – but is a counter productive measure. Would it not be better to inform and educate the masses of the benefits those investments would bring – cash into the economy. Would it not be clever to take the knowledge those operators have and make use of it like M&S does working with its farmers helping them grow cost effective – minimizing post harvest waste – that alone would reduce costs – and indeed cut out the ineffective middle link in the supply chain that adds no value whatsoever, just costs and gets it to the consumer faster, fresher and assures the farmer at better price the they get currently.
Take an example of the organic cotton farming projects in Tamil Nadu.Those retail giants don’t operate with robots, they need people too, lots of people. All the auxiliary services too will need lots of people – those are the things we need to explain to the masses. The one that will get the greatest benefit is the Farmer – as it has been proven in many countries across the world. The corner shops will NEVER disappear but will be there FOREVER! Maybe, not as many as currently but hell some of those so-called shops are just holes in the wall anyway.
Strangely, one does not see or hear any complains from the large retail operators – those would be the most affected one. Is it because they are already in the starting blocks to ink in JV with the retail giants that would like to enter the market? My particular experience in Retail, both as a supplier and as a retailer, is ONLY in Food and Beverages and the examples from those sectors. The fear of higher prices is of course a real one – but it is NOT because of FDI in retail but the present pricing Scenario must change.
Why is nobody pointing out the out dated MRP System. The consumer gets NO benefit under the present MRP system – the margins are only made by the Retailers squeezing their suppliers for more discount on MRP, longer payment cycles and other obscure charges, which are of NO benefit to the consumer whatsoever. The consumer pays the same price at a modern retail outlet or the Kirana Shop around the corner. There are no free lunches for the consumer and when retailers give specials they are costed in to actual product before making the actual product costlier than it should be. The cumbersome pricing system sees to it.
Where is the differentiation between one retailer and the other, certainly not in the merchandise – everyone has basically the same. Suppliers have difficulty making special deals with retailers because of MRP – Retail in India could never have a Penny Market or an Aldi or low value retailer – the same product from the same manufacturer carries the same price, because of MRP. There is no room for “Stack them high and sell them Cheap” concept! Every product has by nature its own MRP – but it should be driven by the consumer – when the consumer sees value in the product – this product will be purchased – if not the product will fail and the supplier/retailer chain will than be driven to be have the right prices for the right product. When there is an open market policy we all will benefit and that includes the revenue masters.

Having Foreign Direct Investment into retail would help with changes. Changes on the retail front have happened, but because of the system funding has become more and more difficult as margins are not met – so say hello and thank you for the influx of capital. Use the local financial resources for infrastructure development – embrace Foreign Direct Investement. Chris Pohl

Posted @ December 07, 2011 11:04

 
       

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