TransformationThe Game ChangerFDI in multi-br<strong>and</strong> retail will spur Indian MSMEs to boost their globalcompetitiveness <strong>and</strong> tap into new growth opportunitiesMSME <strong>Business</strong> <strong>March</strong> <strong>2013</strong>14In 2006 Government <strong>of</strong> India allowedFDI in single-br<strong>and</strong> retail to giveconsumers greater access to foreignbr<strong>and</strong>s. However, the entry <strong>of</strong> globalbr<strong>and</strong>s through single-br<strong>and</strong> retailingfailed to increase Indian consumerschoice <strong>of</strong> goods <strong>and</strong> services as mostlyluxury br<strong>and</strong>s took this route.Several foreign retailers <strong>and</strong> br<strong>and</strong>sentered the Indian market throughdifferent routes like wholesale cash<strong>and</strong> carry, wholly-owned subsidiary inmanufacturing, licensing <strong>and</strong> distributionagreements, joint ventures for eachbr<strong>and</strong> (or single-br<strong>and</strong> retail route),franchising <strong>and</strong> commission agents.In the effort to open up the retailsector, Government allowed 51 percentFDI in multi-br<strong>and</strong> retail in September2012, but left it to the state governmentsto permit global retailers to open storesin their respective regions.Government also tweaked thesourcing norms for FDI exceeding 50percent in single br<strong>and</strong> retail, requiringforeign firms, which want a relaxation<strong>of</strong> the 30 percent procurement norms,to set up manufacturing facilities inthe country. Cabinet gave its nod tothe policy in November 2012. However,the policy has been put on hold due topolitical opposition.The situation dem<strong>and</strong>s a carefulscrutiny <strong>of</strong> the likely impact <strong>of</strong> a liberalFDI retail policy on Indian producers,kirana merchants, consumers <strong>and</strong> theworkforce. What emerges is that globally,FDI inflows <strong>and</strong> the presence <strong>of</strong> globalretail majors have not undermined thebusiness interests <strong>of</strong> local retail players.The acceptance <strong>of</strong> any br<strong>and</strong> local orforeign depends on how long it is presentin any particular market.Moreover, consumer dem<strong>and</strong> fora wide variety <strong>of</strong> products <strong>and</strong> br<strong>and</strong>swill prevent any firm from absorbingthe entire market share no matter howsuperior its technology or how low itsprice be even if it is far more efficientthan its average rival. Therefore, FDIcoming into domestic markets cannotallow any firm to gain substantialmarket power.Growing consumer awareness <strong>of</strong>different br<strong>and</strong>s will also increase theoverall consumer spend which in turn willcontribute to the GDP growth.
TransformationMulti-Stakeholder BenefitsFDI in multi-br<strong>and</strong> retail will indeedbenefit industry, producers, kiranamerchants, consumers, <strong>and</strong> the workforcein very many ways. A <strong>CII</strong> survey <strong>of</strong> industryleaders revealed that an overwhelmingmajority (80 percent) <strong>of</strong> the respondentswere in favour <strong>of</strong> FDI in multi-br<strong>and</strong>retail. They also recognised that aliberal FDI policy will greatly benefit theMSME sector.FDI in multi-br<strong>and</strong> retail will alsodrive industry to adopt more consumerorientedpractices including closemonitoring <strong>of</strong> consumer preferences.Consumers who do their purchases atmodern outlets have experienced betterproduct quality, lower prices, one-stopshopping, choice <strong>of</strong> more br<strong>and</strong>s <strong>and</strong>products, better shopping experienceswith family <strong>and</strong> fresh stocks.Moreover, where safety is a key factor,consumers tend to opt for br<strong>and</strong>ed goodsthat are perceived as safe <strong>and</strong> conformingto government regulations. They are alsobetter protected against incidence <strong>of</strong>food adulteration.Organised retail with FDI participationwill help Government to systematicallyenforce the regulatory norms. Thereis greater transparency <strong>and</strong> ease <strong>of</strong>monitoring in the case <strong>of</strong> organised retail,which sets stringent st<strong>and</strong>ards that areexecuted through pre-defined processes<strong>and</strong> technology.<strong>CII</strong>'s considered view is that MSMEproducers will greatly benefit from thesourcing opportunities that stem fromFDI participation in the sector. Accordingto a <strong>CII</strong> survey, FDI in retail will push upsourcing from MSMEs to $298 billion fromthe present value <strong>of</strong> $157 billion.FDI in retail will also help MSMEsin terms <strong>of</strong> gross sales, new orders /contracts <strong>and</strong> overall growth.Besides, a liberal FDI policy will usherin advanced technologies <strong>and</strong> expertisethereby augmenting the supply chainmanagement <strong>of</strong> recipient firms. <strong>CII</strong>maintains that supply chain efficiencieswill help reduce wastage, such as seen infruits <strong>and</strong> vegetables production. This inturn will help government curb inflation<strong>and</strong> bring down the interest rates.FDI in multi-br<strong>and</strong> retail is expected toaugment the business prospects <strong>of</strong> some12 million kirana stores in the country.Merchants who are looking to scale upwill gain access to patience capital whichis relatively scarce in the country. Manymore br<strong>and</strong>s <strong>and</strong> products entering theIndian market can be retailed at thekirana stores.The kirana merchants will also gaineasier access to credit <strong>and</strong> financefacilities, logistics support <strong>and</strong> modernsystems <strong>and</strong> processes that drive upefficiency levels. Pertinent to note thatmany <strong>of</strong> the new-generation kiranamerchants are already using technologieslike mobility, e-commerce <strong>and</strong> socialmedia to run their business <strong>and</strong> meetcustomer expectations.Moreover, according to a <strong>CII</strong> survey,nearly 70 percent <strong>of</strong> the employees inthe retail industry see FDI as a growthopportunity for them. They believe theemployment levels will rise with neworders coming in from around the world.FDI in retail is likely to encourage firms tohire more. Dem<strong>and</strong> for contract labour toowill increase. So the notion about peoplelosing their jobs in the wake <strong>of</strong> FDI in retailis completely unfounded.Way ForwardKeeping in view the key benefitsthat FDI in multi-br<strong>and</strong> retail will likelydeliver, <strong>CII</strong> has recommended a set <strong>of</strong>steps <strong>and</strong> guidelines for seamless foreigninvestments in the sector. They are:Kirana stores can be organised intolarger cooperatives to make them moreattractive for investments.Encourage SMEs supplying to globalretail majors in India to focus upon thequality st<strong>and</strong>ards set by the majors, <strong>and</strong>help them gain deep underst<strong>and</strong>ing <strong>of</strong> thecomplex vendor management systems.Improve public <strong>and</strong> privateinfrastructure around multimodaltransport hubs, warehouses, distributioncenters, mismanaged supply chainswith cold-storage <strong>and</strong> other facilitiesdrive inefficiencies.Empower consumers throughawareness programmes, helping them setthe right expectations from all categories<strong>of</strong> br<strong>and</strong>s <strong>and</strong> products.Bring about changes in legal normssuch as those on zoning, store sizes,opening hours, import taxes whichcan shape the emergence <strong>of</strong> retail <strong>and</strong>select formats.Government <strong>and</strong> industry need to becognizant <strong>of</strong> the fact that FDI in retail cansometimes negatively impact consumers ifcorporate retailers adopt anti-competitivepractices such as predatory pricing. So,the Competition Act 2002 can be furtherstrengthened. Also protect consumersagainst predatory pricing.Simplify <strong>and</strong> streamline thelicensing <strong>and</strong> approval processes, createa single window clearance up to theextent feasible.Ensure uniform implementation <strong>of</strong>updated laws like APMC Act, etc.Update existing laws like Shops <strong>and</strong>Establishment Act to make it audit basedor self reporting.The retail industry in India facesmultiple challenges in terms <strong>of</strong> scale,employability <strong>and</strong> shortage <strong>of</strong> relevantskills. Managing this challenge requiresthe Government to create recognizedcourses <strong>and</strong> industry wide accreditationsfor basic training for entry level employeeswith pre-defined quality st<strong>and</strong>ards;provide an impetus to Governmenteducational establishments to introduceretail programs <strong>and</strong> extend incentives<strong>and</strong> support to retailers to create trainingbodies for development <strong>of</strong> employees.On a larger plane, organised retailindustry in India is expected to grow to$535 billion by <strong>2013</strong> with modern retail(organised retail) accounting for a 10percent share. Experts expect the industryto scale the $1,250-billion level by 2020.MSME <strong>Business</strong> <strong>March</strong> <strong>2013</strong>15
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