This editorial comes at this crucial juncture when the ruling government and the opposition (that includes some Congress allies in the government too) have locked horns over the entry of foreign private players in the retail segment. The debate was imperative as the retail industry has always been considered as the nervous system of any nation, and this industry has in most of the cases even helped nations revive themselves during bad times. So it was interesting to evaluate the entire debate from an analytical dimension as well. Currently, the organized retail in India is only 2 per cent of the retail industry; clearly, a huge opportunity is waiting to be unleashed. The opportunity can be gauged from the fact that the American organized retail market is 80 per cent of the overall retail market, Thailand is at 40 per cent and China at 20 per cent! If on one hand organised retail is a global reality, then on the other, the Indian middle class has the given power to splurge, making the proposition viable. Then why is there a protest? The fact is that the ongoing nationwide protests against foreign entry in retail are a bit too late, too baseless and based more on a campaign by emotionally charged political parties which lack pragmatism. After allowing FDI everywhere else, why at all these recent dramatics against retail? Every government in the past has made deals and allowed FDI to enter systematically into India without a plan in place to make Indian firms competitive beforehand. We systematically ruined Indian competitiveness; yet, now for publicity, are creating a hullaballoo against the opening up of retail. The fact is, FDI in retail is inevitable. And not that there are no benefits.
If things go right, then the entry of foreign firms in the long run should benefit the overall economy by subsuming farmers, producers of finished goods, creating mass scale employment, increasing government revenue and hopefully cleansing the muck that lies in our storage and distribution. If all falls into place, then organized retail market is then expected to reach approximately $260 billion by 2020. It would augment income levels of all stakeholders to the tune of $35-45 billion a year, new employment generation to the tune of 3-4 million directly and 4-6 million indirectly. With foreign multinationals setting up shop across the country, the government exchequer would likely bloat up by $25-30 billion per year. The Small and Medium Enterprises (SMEs) are likely to prosper too and learn the concepts of enhanced production, higher productivity, assured supply, quick payment and better quality. It will further boost the organized sector growth – a sector that is already growing at an impressive 24 per cent in the last 3 years. The retail sector would also increase the farmers’ income – who at the current stage are on the threshold of marginal living at best or on the verge of committing suicides at the worst. So, of course, it is inevitable for India to allow FDI in retail and the writing on the wall is also very clear. But amongst all this, almost everyone is missing out one moot question, which is fundamental to the success of the Indian retail story.
Amongst other clauses that the government has put, one interesting clause is that these large retailers have to essentially source their supplies from the small and medium enterprises to the tune of 30 percent. But then, this is a universal clause and does not essentially mean that it is the Indian SME segment that is going to benefit from the same. And this is where we have our biggest threat. The question is: would Indians take pride to pick up Indian brands from these stores? The bigger question is: do we have enough Indian brands which can stock the shelves of these monstrous giant outlets? In fact the entire debate of organized retail short-changing the farmers and producers is all baseless, simply because retail survives finally on what sells. And if Indian producers and manufacturers are able to produce brands which are in demand, then they definitely would get shelf space. It is no secret that more than 60 per cent of what Walmart sells in the US is sourced from China. The same holds true for the Tescos and the Carrefours of the world.
- 02 December 2011 |