Special Correspondent

`Consultation with domestic players is vital'

  • Domestic players want 2-3 years to consolidate
  • Companies favour export commitment on FDI investment

    NEW DELHI: While the domestic industry is opposed to 100 per cent foreign equity in the fast growing retail sector, the overwhelming majority of the domestic firms are keen on allowing 49 per cent foreign direct investment (FDI) in a calibrated manner.

    Based on this feedback, the apex industry association, Associated Chambers of Commerce and Industry of India (Assocham) has endorsed this to enable the domestic players in the organised retailing get at least two to three years' time to face competition from giant foreign players.

    In a note submitted to the Union Commerce and Industry Ministry, Assocham has suggested to the government to first consult the domestic industry before finalising and announcing entry of overseas mega malls.

    Domestic cos. seek time

    In response to the Assocham questionnaire circulated to the domestic players, one of the leading retailing companies, which runs value-buying chains and is expanding fast, wanted two to three years for the domestic industry to consolidate. It has argued that organised retail was still at a nascent stage and formed only three per cent of the entire retail trade.

    If the sector was opened up now, the country would attract only little foreign investment compared to what the company could attract a few years later. In a few years, the share of organised retail would be significantly higher and the country would be far more attractive and ripe to attract higher levels of FDI.

    In its response, it also cited the case of China saying that it opened up its retail sector to FDI only after the domestic organised retail industry was large enough to face competition from foreign players.

    Many of the retail firms in the domestic sector favoured export commitments on the FDI investment by as much as 20 times. They also wanted FDI investment in back-end infrastructure like cold storage so that the supply chain becomes smooth.

    As against ten, 15 or may be 20 stores, the foreign players run a huge number of stores worldwide giving them the economies of scale and managing their global supply chain. The annual turnover of Wal-Mart of over $250 billion is much higher than the total size of the Indian retail industry (both organised and unorganised). It has over 5,000 stores worldwide.

    Besides, the domestic players suffer from lack of infrastructure, the biggest bottleneck being the prohibitive prices of large retail spaces in the upmarket or central locations in the large Indian cities. This is primarily because the private holdings are fragmented and the impact of the Urban Land Ceiling Act. The pro-tenancy Rent Control Acts have distorted the property markets leading to exceptionally high prices.

    A plethora of bureaucratic hurdles and high capital cost also place the domestic retailing firms at a disadvantage against the international players who have over the years placed efficient chains in order at a low capital cost. It is estimated that for opening a single store in the country as many as 13 licences are required.

    "The absence of single window clearance, coupled with other issues like lack of property infrastructure, work as a major impediment to the growth of the retailing," Assocham said.