FDI: The hullabaloo

With the continuance of UPA government in power, the retail sector was hoping to feel a whim of fresh air but things seem to be more or less the same.Everyone is riding on speculations and hoping for the for the best. But will it come about?
Welcoming change

FDI is an issue that has been a hot topic in the retail for a really long time. 
India presently has the largest retail industry in the world and the easing of the FDI would help it achieve greater heights. 

Present FDI scenario
Currently India does not allow FDI in multi-brand retailing while in single brand retail there is 51 per cent limit on FDI. For wholesale cash and carry model 100 per cent FDI is permitted. 

Suggestive track
A total ban has also been suggested on the domestic heavyweight corporates from entering retail trade in grocery, fruits and vegetables. According to the economic survey report tabled in the Parliament, the beginning of multi-format retail should initiate with food retailing. The opening up of multi-brand retail is subject to the condition that the international retailers would jointly develop modern logistics along with the domestic retailers. Also when they open wholesale outlets, the unorganised players must be allowed to purchase from them so that they can further sell at a lower price. 

Benefits it will bring along
Coming of foreign players will lead to greater competition which will give way to lowering of prices. It will make India competitive globally and at the same time provide access to international quality goods and services. The investment would also bring about maturity in the market and instill confidence in the sector. Liquidity and infrastructure would be the result of this relaxation of FDI. Arvind Singhal, Chairman, Technopak points out, “FDI in retail will open up but gradually eg. single brand may be increased and multi-brand may be allowed for non-sensitive categories initially and then for sensitive categories (like F&G). This would be because Indian consumption is increasing – so even though organised retail is growing at a rapid pace, the unorganised retail will continue to grow in absolute terms. This means both organised and unorganised retail will co-exist. Overall Indian retail is expected to grow from US$ 410 billion to 755 billion between 2008 and 2018. Organised retail will grow from US$ 18 billion to US$ 170 billion in the same period. Hence there is no overall ‘threat’ to the existence of unorganised formats like Kirana stores. Also retail is a relatively long break-even business. So companies would want a higher control on operations. Finally the overall investment in back-end would increase efficiencies in the supply chain and even smaller unorganised players will benefit from the improved efficiencies.” 

The dark cloud
The dark side of not opening of the FDI is the halt on the incoming of the foreign exchange. The latest to snap up their plans of an entry in India due to the halt of change in FDI is IKEA, the Swedish furniture giant who had plans to enter the country if 100 per cent FDI would have been permitted in single-brand retail. 

Future anticipations
The retail market in the country is expected to grow to $590 billion by 2012. If FDI gets a go ahead then probably we would be able to look at bigger numbers! Let’s wait and watch!



 

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