Long wait for multi-brand retail FDI?

While 51 per cent FDI in multi-brand retail is put on hold, 100 per cent FDI in single brand retail has received a go-ahead from the government. What does the industry think about it?
FDI in retail

Several affluent and educated sections of our society are rooting for FDI in retail. But with the concern over the negative impact of FDI in multi-brand on kirana stores, there is disappointment among a few groups of consumers and the corporate world. Currently, the government has put the decision of FDI in multi-brand on hold. In the same context, the Retailers Association of India (RAI), on behalf of all its members, has written a letter to the Commerce and the Finance ministries to open the non-food retail to FDI. As per RAI, initially FDI should be allowed in non-food categories such as apparel, electronics and home products.

The Indo-American Chamber of Commerce (IACC) has also suggested a nationwide awareness programme on the pros and cons of allowing FDI in the multi-brand retail sector in order to clear any misapprehensions of the trading community and to gather consensus on this issue. “The fears expressed in the public domain about the fault lines of FDI in multi-brand retail are largely based on presumptions, hearsay and inadequate data of the consequences of FDI in various sectors in India, as also the international experience. FDI in multi-brand retail is allowed in developed economies and also in countries like Malaysia, Indonesia, Brazil and Russia, which share similar levels of development as India. In these countries, it is significant to note that the domestic retail trade has not taken a beating. Rather, the development  of the food processing infrastructure like cold chains, processing  units, facilities for bulk sourcing etc have helped farmers (who face significant adversity in effective distribution channels in India) and retail trade alike,” says Anand Desai, National President, IACC.

But ultimately, the opening up of multi-retail sector can also create gainful employment, exponentially increasing the average income of the people in the country. Retail chains would require better storage and processing centres leading to better development of the transport, component and logistics segments of the Indian economy. So, it would be a win-win situation for all!

Initial reactions

The retail sector enthusiastically welcomed the new foreign direct investment (FDI) norms announced by the cabinet in November 24, 2011. As per theUnion Cabinet’s decision, 51 per cent FDI is allowed in multi-brand retail and 100 per cent FDI in single brand retail in India. The industry experts believe that new FDI norms in retail will help the Indian retail industry to grow faster. The consumers will also benefit from this move as they will be able of avail more purchasing options and better deals due to intense competition among brands.

Sharing his views on the issue, Sanjiv Goenka, Chairman, RP-Sanjiv Goenka Group, said, "I welcome the Cabinet's approval of allowing 51 per cent in multi-brand retail as this will propel the growth of organised retail in the country. This is ample proof that the government is focused on pursuing the reforms agenda, which is very good news for the economy. This is good for the consumers as well, as this will lead to disintermediation of the supply chain and bring substantial investments and technology in the back-end, thereby reducing wastages and improving efficiencies which will have a softening impact on inflation in the long run.”  

Ashutosh Garg, Chairman and Managing Director, Guardian Lifecare, opined, "“Guardian Pharmacy strongly supports the government’s decision to open up foreign direct investment in multi-brand retailing. As a major player in the organised pharmacy retail in our country, we have been making significant investments in our supply chain and retail stores to provide the consumer with a much higher level of service in our pharmacies. With access to more capital, we hope to continue to strengthen this further across the country. In addition, by bringing in efficiencies into the procurement process and managing inventory levels, Guardian hopes to drive down prices of key medicines for the overall benefit of the consumer.”

Mark Ashman, CEO, Hypercity, commented, "We believe that these changes are welcoming and good news for the Indian consumer, good news for the retail industry and good news for suppliers and manufacturers. International retailers will bring further investment and experience to our growing retail industry. Competition is good for business, with the best companies growing stronger.”

Future opportunities

The Confederation of Indian Industry (CII) has announced that FDI in retail will boost organised retail in India and drive inclusive growth. Agricultural states such as UP, Punjab and Haryana would be immensely benefited by this decision by way of 'backward integration and investment in farm to fork'. This will also bring in global best practices in agricultural marketing and sourcing of raw materials.

Currently, the total retail market is estimated to grow to US$ 1,250 billion by 2020, of which 21 per cent would be organised. With added capital investments from key overseas players, the sector would have the potential to significantly impact the Indian economy.

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