Global retailers prefer to wait, for now

Anjali Prayag Bangalore | Updated on December 23, 2011 Published on December 23, 2011



Govt should have adopted calibrated approach, experts feel

If global retailers have never played on the see-saw, then India is where they should head to in the next few months. Although they have already missed the initial days, it's unlikely the scene will change much in the months to come.

Late on November 24, the world hailed the Government for giving the much-awaited nod to 51 per cent FDI in multi-brand retail and 100 per cent FDI in single-brand retail. It was a significant decision for the $350-billion Indian retail sector that is looking for funds, apart from help in best practices and technical know-how

The Union Cabinet approved foreign players such as Walmart, Tesco and Carrefour to enter the country with a 51 per cent stake in retail ventures. Unabated inflation and supply chain issues would be addressed with this decision, the Government assured dissenting voices.

Even before the industry welcomed the ‘good' news, the Opposition, citing issues such as job loss, kirana stores losing business to MNC retail chains and farmers and SMEs being short-changed, ensured that the Government put the decision on freeze.

As a result, even as the year comes to a close, global retailers waiting in the wings are in no better position than a year ago.

‘Won't wait forever'

While the Government is still hesitant about the next step, it's wrong to assume that global retailers will wait forever, say retail experts. “The Government is sending the wrong signals to global players. While they are wary of the policymaking process in the country, these retailers also now realise it will be a challenging task to tackle each State Government on APMC rules if FDI is ever allowed,” says Mr Arvind Singhal, Chairman, Technopak Advisors.

Global retailer Walmart has indicated that India allowing 51 per cent FDI in retail had actually exceeded its expectations. In view of the political sensitivity, the company was comfortable with a 49 per cent FDI.

Mr Raj Jain, Managing Director and CEO, Bharti Walmart, had said in November that while the FDI nod was welcome, the company will need to study the conditions and the finer details of the new policy and the impact it will have on its ability to do business in India.

The American Chamber of Commerce (AmCham), with about 500 members, has said that given the Government's desire to have a calibrated approach, “Amcham recognises the importance of a phased change of allowing the first step of 49 per cent FDI.”

Mr Singhal blames the Government for not being articulate enough about the impact of FDI. “That's because the policymakers themselves have not understood the concept well enough,” he says.

Challenges to FDI

On challenges the foreign retailers could face in the event of FDI opening up, Mr Singhal puts rigid local APMC rules on top, followed by infrastructure inadequacies and unskilled workforce.

“APMC rules in various States have to be disbanded and farmers should be free to sell to whoever they want,” says Mr Singhal.

Job generation

The issue of talent or job creation can be tackled by the industry, says Mr Kumar Rajagopalan, CEO, Retailers Association of India. “There are a lot of unemployed youth in the country and they can be made employable by effective skill development.”

He sees the cost of real estate as a bigger hurdle to retail sector development. “A more comprehensive city development plan by States will help. If we realise that shopping is an integral part of living standards in the cities and the potential of locked real estate with Government entities is planned and used, this can also be tackled.”

Currently organised retail penetration in the retail market is about eight per cent, indicating that there is a huge opportunity for growth. Retail business now contributes about 14 per cent to the GDP.

Published on December 23, 2011
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