The Hindu Business Line : FDI in retail: RAI fears predatory pricing

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FDI in retail: RAI fears predatory pricing

R. Y. Narayanan

Restrict foreign players to lifestyle products segment, says Vedamani

Domestic industry is not afraid of competition, but is wary of pricing tactics.

MR GIBSON G. VEDAMANI

Coimbatore , Oct. 7

Organised retailers in India are opposing the entry of MNCs in retail trading not because of any fear over competition but because of their predatory pricing strategy that wipes out competition, according to Mr Gibson G. Vedamani, CEO, Retailers Association of India (RAI), Mumbai.

He said that when the Government decides to allow foreign players to enter the retail space, it should first restrict them to lifestyle products segment before permitting them to spread their wings into other areas like grocery marketing that has a direct impact on `kirana stores'.

He told Business Line in Coimbatore that the industry is aware that it is just a matter of time before foreign direct investment (FDI) in retail space is permitted. The question is how the Government can ensure a `level playing field' for everyone.

Mr Vedamani said the entry of foreign players should not affect big or small retailers in India. If FDI in retail is allowed, the stores would stock imported goods that would be detrimental to the interests of local producers and farmers.

Protecting farmers

Domestic retail industry wanted that the marketing of our own produce in the stores and the interest of our farmers should not be affected. If such retail stores import and stock food and grocery items from abroad, it would affect the interest of the local producers and farmers.

Asked specifically as to whether the Indian retail industry is afraid of foreign competition, Mr Vedamani said the industry is not afraid of competition, but is wary of `predatory pricing'.

He said, without mentioningnames, that there are instances of companies adopting predatory pricing when they entered other countries. "There wasnothing else to be afraid of," he pointed out.

The local retailers have better understanding of the divergent demands of the domestic market than anyone else and it would take time for any foreign company to fully understand the intricacies of the Indian market, he said.

Predatory pricing

Asked how the impact of any permission given to FDI in retail business would be different from the entry of industrial powerhouses in the business, whichcould also go for aggressive pricing due to volume purchase, he said there was a subtle difference between selling at lower prices because of `purchasing efficiency' and predatory pricing. In the latter, companies sustain losses for three to five years to `kill competition completely' and build their business.

He said the entry of large Indian corporate houses into retail space was welcome as there are not enough large formats. He did not expect the Indian companies to resort to predatory tactics as they are responsible to their shareholders and they have the stakeholders' confidence in mind. Mr Vedamani did not expect any problems for the small retailers for the next five years. The small players are trying to `re-discover' themselves and have tried to cooperate with large stores by becoming sources of procurement for vegetables, fruits etc. and have also become more customer-friendly.

He clarified that RAI had not asked for any sectoral restriction on FDI and wanted only some restrictions on minimum investment and shop area, and the locations where they could open stores.

Mr Vedamani said the business volume of the organised retail business in India was estimated to be about Rs 90,000 crore, constituting approximately 9 per cent of the total retail business.

This segment has been witnessing 40 per cent CAGR. When the big corporates enter retail business, its size could grow to even Rs 2,50,000 crore in the next five years.

He said the Government should allow the retail industry to function 24x7, 365 days a year. The Government should also give single window clearance for opening shops rather than asking them to obtain a plethora of licences. He added that certain areas must be earmarked as retail zones and extend stamp duty concessions on lease deed registration etc.

Mr Vedamani said there was a phenomenal growth in manpower requirement and RAI had tied up with institutions for starting retail management courses that have seen 100 per cent placements. The availability of real estate and growing consumer awareness would see the retail boom spreading to tier II and tier III cities, he pointed out.

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