The government has initiated steps for allowing foreign direct investment (FDI) in multi-brand retail but the issue is far from settled even among the various arms of retail businesses such as traders, retailers and business houses. This was amply evident during a discussion on ‘FDI in retail: understanding the issues' in the opening session of the India Retail Forum organised by Images India here.
Two-day event
The two-day event projected as the ‘Ultimate retail knowledge platform' saw participation from industry bigwigs, including Abheek Singhi (Boston Consulting Group), Rajeev Kumar (FICCI), Kishore Biyani (Future Group), Raj Jain (Walmart India), Bijou Kurien (Reliance Retail Lifestyle), Ajit Joshi (Infinity Retail), Thomas Varghese (Aditya Birla Retail), Nikhil Chaturvedi (Provogue), B. C. Bhartia (Confederation of All India Traders) and Viren Shah (Federation of Retail Traders Welfare Association).
While the traders' representatives questioned the need for the “marketing” of FDI in multi-brand retail and the resultant imminent loss of jobs, the retailers emphasised the need for capital, technology and knowhow. “Foreign companies do not want to come for some altruistic reasons. They are looking for business and for expanding their footprint,” said Mr Bhartia.
However, when asked pointedly by Mr. Biyani of Big Bazaar if he had known of any kirana stores that had closed down as a result of the growth of retailers, Mr. Bhartia could not immediately come up with any examples but he added that the government's call for private investments in warehouses and in storages had not met with any success “because there was no money there''.
He went on to assert that the only ones interested in bringing FDI in multi-brand retail were “some bureaucrats in the Prime Minister's Office and the multinational companies themselves''.
Game changer
As always, the voice of the farmers and consumers was missing from the discussion until Mr. Varghese became the game changer by emphasising that the need to start with FDI and technological inputs from the back-end supply chain. Mr. Shah also stressed the need for FDI in back-end supply.
Mr. Biyani, who is planning a big entry into the processed food sector, said that modern retail drove consumption of processed foods which promoted economic activity. Impetus to this sector will come from FDI because foreign investors look at long-term perspectives unlike domestic players who do not look beyond five years. Mr. Chaturvedi, however, wanted a headstart for domestic retailers before the government gave a green signal to foreign investors. Even Mr. Joshi, who opposed FDI in retail to some extent, demanded a level-playing field for Indian players.
Both Mr. Shah and Mr. Bhartia, speaking for small retailers and kirana stores, expressed apprehension that their interests would be compromised. When someone suggested a model in which foreign investors could give franchise to domestic players in back-end supply chain, Mr. Bhartia said even that was “not acceptable'' as that was a “backdoor entry route” and in no time there would be take-overs and the domestic owners would work as “managers'' in those stores only to be “kicked out eventually”.
Reaction
This argument invoked a strong reaction from Mr. Kumar of FICCI who emphasised that one should look at “the glass as half full instead of half empty'' when India was looking to become a global player and was looking at a GDP growth rate of between 8 per cent and 9 per cent.
Defending FDI in retail sector, Mr. Raj Jain of Walmart-India pointed out that “it was now known that the structural food inflation was likely to be here in India for about the next seven years because people were living better and eating better. You need to produce more or import more and there are limitations to both. You need investment and technological inputs to link the back-end supply chain with the front-end”.
The discussion concluded with a haze over the policy the government was set to adopt. Several participants were sceptical about the conditionality of giving protection to 30 per cent small traders, 15 per cent investment in back-end supply along with the state governments having a say in the matter.
“The government may allow FDI in retail in four months or in four years. It is a question of political will,” concluded Mr. Kumar.
The size of the retail market in India is estimated at $435 billion.
