India @ 60: FDI in Retail – The Next Big Thing?

Posted: December 2, 2011 in My Opinion

All the signs are there but will it happen and when?

Few months back on 15th August, India celebrated 60th anniversary of independence. For the next 12 months, we will utilize this occasion to glance at aspects of the Indian scene that offer interesting pictures of how the country has transformed in its first six decades and how it is expected to change in the years ahead.

While moving through the roads of India, you might not believe that it is going to be next international retail Mecca. Unlike the women of New York, London and Paris who look as if they’ve stepped out of the latest fashion magazines, the majority of women in India parade the streets in traditional saris, which though timeless, serve as an indication to many international fashion retailers that it might not yet be the right time to enter the market. Combine that with infrastructure challenges and regulatory barriers, and it is no wonder that India has been sitting on the verge of a retail boom for many years now.

The question remain there, when will it actually happen? Well supported by economic growth which averaged 8.4 per cent per annum over the past five years, India’s retail market was estimated at US$380 billion in 2010 and is forecasted to more than double to US$785 billion by 2015. This may appear significant, the size of India’s consumer market pales in comparison to that of China’s, whose retail market was valued at US$2.3 trillion in 2010. So why then do international retailers and foreign investors remain intoxicated over the promise of a retail revolution in India?

The concern about allowing these major operators to move into retail stems mainly from the concern that large-scale liberalization will adversely affect the large, unorganized retail sector. In a country like India that is struggling to find sufficient employment for its ever-expanding workforce, a retail model that relies on replacing low-skilled labour with technology inspires understandable scepticism. Sonia Gandhi, president of the Indian National Congress, wrote a letter earlier this year to Prime Minister Manmohan Singh reminding him to be cautious about further relaxing limits on foreign investment in retail and expressing her concern for the common person.

The combined effort of foreign retailers and local firms to gain their piece of the retail pie will bring some disruption to the existing small-scale retail sector, including an estimated 12 million small shopkeepers and 40 million hawkers as well as their families. The large operators, especially the foreign ones, have been looking at ways to mitigate this impact. Wal-Mart, in anticipation of entering the retail market directly, has outlined a plan to help compensate local retailers who might be displaced through a three-month retraining program to convert small-shop owners into sales workers.

Controlling FDI or reversing liberalization, however, will not prevent Indian firms from trying to organize the retail sector. Reliance Industries, India’s largest private firm, is already preparing a multibillion-dollar investment to create almost 2,000 supermarkets, employing more than half a million employees. Tata, ITC, Reheja, and Piramal all have similar plans.

Even evidence suggests that as more of India’s large number of young people emerge as professionals, they are likely to spend a growing share of their pay-checks and even borrow to purchase high-end luxury goods. India is already home to the fastest growing mobile phone market and boasts an automobile market growing at more than 25 percent a year. Personal consumption in India accounts for 61percent of its GDP, significantly higher than China’s 39 percent.

In addition, modernization will also create demand for jobs staffing warehouses, supply centres, and transportation routes. Such plans will not eliminate the controversy surrounding foreign investment in retail. Wal-Mart’s reputation in the United States as a hard-nosed employer bent on minimizing employee benefits will certainly influence the political response to any decision to liberalize the retail sector.

I ask you all only one question: Why a lot of debate is going on “whether FDI liberalisation should be done in India or not”? This is a bold step and people should come forward to accept it. If you love shopping in mall, eating pizza n burger, wearing Levis jeans, using Facebook & Google, so why scare of retail FDI liberalization.

From the customer prospect it is a win win situation. There is little concern for the small retailer and vendors, which will be sorted out with passage of time. If huts can be replaced with banglow, market by shopping mall, then why not shop by giant retail outlet.

Still the choice is your…………..

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