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FDI in Retail an Unending Sweet Dream

Posted: Tuesday, 29 March 2011 10:08

FDI in Retail an Unending Sweet Dream

Despite the pro-FDI corporate lobby working overtime after the Economic Survey presented to the parliament last month conceded that it would improve the efficiency in the supply chain and address concerns of farmers and consumers, there was no mention of it in the central budget and the Finance Minister again reiterated last Friday that the government was still undecided, thus continuing the stalemate. 

There has been a strong lobbying by various quarters including the international retail chains like Wal-Mart who have at present partnered with Indian companies like Bharti and have had to be content only with the back-end operations so far while eying a significant increase of the pie to help their top as well as the bottom lines.

Wal-Mart has said it is ready to open hundreds of retail outlets if rules are liberalized. In October, Chief Executive Mike Duke had said he was very positive the rules would be eased after meeting Indian officials. Doug McMillon, President and CEO of Wal-Mart International had expressed in Jauary in Davos at the World Economic Forum that allowing foreign direct investment in multi-brand retail would not impact the fortunes of small kirana shop-owners, a contentious issue since the seed of FDI for Retail was sown in the mind of Indian economic planners.

Justifying FDI for Retail at a panel discussion in Davos, he had reportedly commented, ‘I can give you the example of Mexico where we entered in 1991. Even today, after 20 years, 50 % of retail is done informally in the unorganized sector.’ He added that fears of large MNC retail chains forcing the kirana stores to close down are overstated

He had been then snubbed by Indian Commerce and Industry Minister Anand Sharma who said that global retail chains like Wal-Mart and Tesco should focus only on the back -end infrastructure even though the issue of opening multi-brand retail for FDI was under active consideration by the government.

Stressing his point further, Sharma had added, ‘Multi brand can come only when the back-end infrastructure is created; that’s where the farmer will get the remunerative prices at the door step,’ telling reporters that one could not say that one would have a front end in the absence of a back-end infrastructure.

Economic Survey 2010-11 had talked about the potential of FDI to help bring in technical know-how to set up efficient supply chains which could act as models of development, noting that “FDI in retail trading is permitted in Brazil, Argentina, Singapore, Indonesia, China and Thailand without limits on equity participation, while Malaysia has equity caps."

India is expected to join this long list of countries where FDI has been allowed in retail for decades. But as the FM, Pranab Mukherjee says, the problem is very complex and a large number of people are involved in the sector. There is political opposition to open up a sector that provides livelihoods for lakhs of people and serves a market of over 1.12 billion.

Referring to the Economic Survey Mukherjee said the beauty of the report was in the freedom given by the system to the analysts, not prejudicing their analysis on the basis of the official view of the government. They have been asked to apply their mind even if the economic survey varies from the official stand, implying that the government was not obliged to accept the recommendations of the Survey.

FDI in Retail and Wine

Despite the practical difficulties, the government is inclined to allow FDI though perhaps in smaller doses at a time and some conditions. When it does, it would help expand the Indian wine market to some extent and for this reason alone, delWine supports the concept. It would be surprising if it did not enter this segment in a big way once it got into the front-end of retail, helping the increase in consumption.

In the US market Wal-Mart is in the wine segment in a big way though perhaps not as big as Tesco in UK. For instance in the state of Pennsylvania where self-service wine kiosks have been allowed late last year, the state liquor control board has recently approved 24 Wal-Mart stores to keep wine kiosks- automated wine bottle dispensing machines in the stores.

It would be interesting to know how much efforts Wal-Mart has put in to lobby in the state of New York to get the legislature to allow supermarkets to sell wine-despite the concerted efforts on behalf of the consumers and presumably by the supermarkets, the Governor has not been able to push the legislation through.

It is an almost a certainty that organised Retail stores like Wal-Mart and Tesco will have wine in their aisles in India, not necessarily to promote the consumption but for their healthier bottom line. Capable of squeezing the best price out of the producers and importers, and with a good grip on the distribution and storage systems, they will be able to bring the prices of quaffable wine down, even if they create private labels like Tesco.  

Wal-Mart Looks at Future 

Looking at the bright and sweet future, Wal-Mart has been making efforts to enter retail even though the wholesale route has been charted with Bharti. The biggest retailer in the world has been reportedly having consultation with Biyani of the Future Group to try and get a stake in the Indian burgeoning retail. Apparently, they are not happy with the slow pace at which Bharti is moving in terms of investment and expansion with only five wholesale stores opened so far.

Biyani on the other hand is frustrated his two- year efforts to tie up with the next biggest retail Carrefour came to a naught. He fully understands the importance of foreign participation in the front-end operations and is looking for a collaboration to leapfrog the exponentially growing business.

Unending sweet dream

But as delWine had reported in the Feb 2 issue this year, ‘despite a lot of hype and rhetoric built around the possible opening of Foreign Direct Investment in Retail, with both sides presenting their case convincingly at the World Economic Forum in Davos last week, FDI still remains a distant dream for the global retail chains who find the Indian market still very lucrative despite a couple of patchy years due to recession in India.’

FDI in retail may be a dream- a sweet dream, but it is still a dreamt; an unending sweet dream. It will undoubtedly become a reality one day but defining the time frame is a political issue and in a country infested with PAs (Personal Astrologers) to the politicians voicing varied opinions for their political clients, and a country where the lawmakers did not dare call the National Wine Board as such and settled for Indian Grape Processing Board instead due to the political compulsion, timing can at best be guestimated only by these PAs.

Subhash Arora

For the earlier article, visit
FDI in Retail still a Dream

Tag: FDI , Wal-Mart

       

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