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subject: FDI in Multi Brand Retailing in India [print this page]

Foreign Direct Investment (FDI) is one of the major sources of investments for a developing country like India wherein it expects investments from Multinational companies to improve the countries growth rate, create jobs, share their expertise, and research and development in the host country.

There have been many discussions on this issue and recently the Government had decided to put up a paper for discussion in the month of July to take views from all the stake holders about the impact and their views on allowing FDI in the multi brand retailing and the commerce ministry is planning to process all the views of the stake holders on October 15th 2010 before putting up the issue in front of political leadership. As of now National Retailers like Future Group, Reliance Retail, Shoppers Stop, Aditya Birla Retail and Spencers are in the multi brand retailing and have been successful in the Indian Scenario by getting private label and expanding in every major cities and towns.

Retailers like Bharti-Walmart have been lobbying hard to get the FDI for Multi brand retailing which it is being barred from and have only B2B stores set-up in India on the outskirts of Chandigarh, Others like Tesco and Carrefour have been trying hard to get into the Indian market which is being seen as a potential gold mine and research agencies have already rated Indian Retail market to be very lucrative taking into consideration the huge population and untapped retail industry which is at a very nascent stage compared to the potential of retail biggies like Wal-mart, Tesco and Carrefour.

On the other hand the current national retailers in India have different view points on the proposal of FDI in India, Retail King of India Mr.Kishore Biyani of Future Group feels that the current situation in the Indian Retail is at a very nascent stage and any introduction of FDI will harm the interest of the National Retailers and believes there are enough investors in India and have been successful citing his own example wherein his home furnishing business investors have received 3x the amount invested. Whereas retailers like Shoppers Stop and Reliance Retail feel with the induction of FDI they can grow at a much more faster rate than now and can cover most of the Tier 2 and Tier 3 towns of India and share the joy and savings with them too and expertise of Wal-Mart and other Multinational retailers can help in building infrastructure which has been a point of concern for all the National retailers as there are no adequate warehouse, cold storage facility and failure of logistics companies in providing highly professional services which can be improved once the foreign retailers will foray into the Indian scenario.

Retail in India has tremendous growth potential, Retail is already the second largest employer in India and any changes by bringing major foreign retailers w

ho will be directly procuring from the main supplier will not only create unemployment on the front end retail but also the middleman who have been working in this industry and the chain will impact the governments growth and employment problems in a long term. Apart from the effect on front end retail, middlemen and mom and pop stores, the effect of big retailers like Wal-Mart has also been seen on the manufacturing sector in United States where companies have either gone bankrupt or have moved to Asian countries in order to sell their products to retailers like Wal-Mart at much cheaper rate and provide discounts to wal-mart's customers by chopping their margins and have been bleeding to keep their big customer i.e Wal-Mart intact. The current Indian retailers have now moved to such a low that now it recruits school dropouts at their retail stores as front end employees which was supposed to be graduates or undergraduates at the beginning mainly because of the non availability of staff and high attrition rate among its human resource and all retailers have now moved from not only keeping their customers happy but also their human resource happy and believe in Happy Associates make Happy Customers idiology and is not being followed by one but all the national retailer from the Tata House to Future Family by providing a good career path to their employees a.k.a associates and have implemented new indigenous models of human resource like the LSD Model by Future Group,The (L)axmi -Monetary, (S)araswati -Providing knowledge and (D)urga-Providing Power in the job to retain talent in the company.

India does have problems at the back end with poor infrastructure, warehouse, cold storage and logistics but it can be overcome very easily as per the Retail Guru Mr.Kishore Biyani who himself now owns not only a logistics company, but also cold storages, and warehouses in all major cities and have improved the situation and feels they can share and grow rather than having individual infrastructures and compete against each other in the National Space and FDI will only send back money to its parent company from the Poor Indians pocket as dividends and make more poorer rather than the other way round.

In any case at the end of the day there is no harm in getting FDI but it should be done in a phased manner with a beginning of 10% and later to 26% and 51% looking at the situation to pump more money in the Indian Retail sector which is also said to be having cash crunch and many other clauses of procuring, staff recruitment, investments in warehouse, cold storage, infrastructure, competition and retail formats so that not only does the money comes in but also it's a win-win situation for the current national retailer as well as mom and pop stores who account for 70% of the retail business even after the arrival of national retailers from the corporate giants like the Tata, Reliance, Future Group and the Birla's.

FDI in Multi Brand Retailing in India

By: Akshay Rao

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