Nupur Anand, Daily News & Analysis (DNA)
\n Mumbai, September 15, 2012<\/i><\/p>\n
India\u2019s retail industry, which is pegged at US$450 billion, \n could expand manifold with the opening up of foreign direct investment \n (FDI) on Friday.<\/p>\n
Currently, the so-called modern trade — or retail chains \u2013 \n have only 5% share of that pie.<\/p>\n
The catch, however, is that the 51% FDI decision has been left \n to the state governments. That\u2019s where implementation problems \n will arise, said experts.<\/p>\n
Trinamool Congress (TMC) that rules West Bengal has given a 72-hour \n notice to the government to change their decision. TMC, which \n is a key ally of the Congress, had managed to push back reforms \n in retail sector last year. After stiff opposition from TMC, BJP \n and Left, the government had to beat a hasty retreat in November \n 2011.<\/p>\n
But Union minister of commerce Anand Sharma said the government \n is firm on its decision and there would be no rollbacks.<\/p>\n
The opposers contend that entry of foreign retail chains will \n wipe out smaller, traditional players.<\/p>\n
Arvind Singhal, chairman of Technopak Advisors, a retailing consultancy, \n strongly refutes this.<\/p>\n
\u201cEven when modern retail started in India there was hullabaloo \n that the mom-and-pop stores will be wiped away. This has been \n proven to be wrong. And if Indian retailers have not managed to \n harm the unorganised sector, there is no way foreign investments \n will. It has been already proven that both organised and unorganised \n sectors can co-exist without much friction.\u201d<\/p>\n
\u201cInvestments flowing in also means more jobs will be created,\u201d \n said Akash Gupt of PriceWaterhouseCoopers. \u201cAs organised \n retail expands, it will hire more people.\u201d<\/p>\n
The government has pinned a few riders when opening up: Foreign \n entities will have to invest 50% in setting up back-end operations \n and 30% of the sourcing has to be done from small and medium enterprises.<\/p>\n
The sourcing norm, however, is likely to be eased.<\/p>\n
Analysts said these two rules will create more and better quality \n jobs.<\/p>\n
What about pricing?<\/p>\n
\u201cThe price will not be impacted majorly. If anything, it \n may come down due to stiff competition. Better infrastructure \n will also ensure that the quality of the products increases tremendously,\u201d \n said Anil Talreja, partner, Deloitte Haskins & Sells.<\/p>\n
The riders also include that any multi brand entity should have \n an investment of $100 million (Rs 500 crore) and the stores can \n be opened up only where the population is more than 10 million. \n At present, there are 53 cities in India that fit this bill.<\/p>\n
Analysts said the largest investments are likely to flow into \n the food segment.<\/p>\n
This decision will also be a big relief for cash strapped domestic \n players such as Future Group.<\/p>\n
\u201cEven global brands will be on the lookout for a strong \n domestic partner. This will provide the global players a customer \n base, infrastructure facilities and will reduce the gestation \n period,\u201d said Devangshu Dutta of Third Eyesight, a retail \n consultant.<\/b><\/p>\n
But investments are unlikely to flow in very soon. \u201cCompanies \n will take time to assess the market and make investments accordingly. \n They will also wait for the political situation to stabilise,\u201d \n said Singhal of Technopak Advisors. The developments have warmed \n the cockles of Raj Jain, president of Wal-Mart India, the unit \n of the world\u2019s biggest retailer.<\/p>\n
\u201cWe are grateful that the government has realised and appreciated \n the value that we will bring to strengthen the Indian economy,\u201d \n he told Reuters. \u201cThis policy change will allow us to connect \n directly with the consumer and help save them money.\u201d<\/p>\n