FDI in Multi Brand Retail Sector - Discussion

Do you support FDI

  • YES

    Votes: 33 70.2%
  • NO

    Votes: 8 17.0%
  • Can't say

    Votes: 6 12.8%

  • Total voters
    47

nrj

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Needless misgivings about reforms

Protests by political parties over moves to open retail to FDI and raise prices of diesel and cooking gas are not backed by sound reasoning. The general policy apprehension over FDI needs to be re-examined.

The UPA-II government has finally summoned the courage to move ahead with the economic reforms process. One could term it as "better late than never" or "too little too late", depending on what further steps will follow.

The reasons to push now at this late stage could be many — such as the approach of elections, the deteriorating economic situation, and the non-functioning of Parliament. Though three years have been lost, much ground can still be recovered.

The reaction of various political parties has exposed their inability to analyse and understand the basic issues underlying the economic reforms. Several have reacted negatively, alleging that the Congress did not consult them, a charge that is patently false. After paralysing the Parliament, one can now hardly ask for discussion in that forum. Others have alleged a sell-out to foreign interests, or a clever move to divert attention away from scams such as "Coalgate". All this hardly amounts to an analytical and factual analysis of the reforms.

FDI IN RETAIL

Opening up organised retail trade to FDI was long overdue and had been approved even by the NDA government. Now, the UPA government has allowed limited opening circumscribed by numerous conditions, such as 51 per cent limit, 30 per cent sourcing from MSMEs, location restricted to large metros, and approval by State governments.

There is no evidence for a net loss in jobs in the retail sector as a direct consequence of FDI. The Indian retail market is challenging, and small retailers will be able to hold on to their traditional customer base. Even if large MNCs set up supermarkets, they will have to contend with high rents for space, power shortages, and parking and traffic problems for their potential customers, not to speak of irksome security arrangements.

Even at present, going to a supermarket for shopping is a major expedition more suitable for those with cars and drivers, and not convenient for users of public transport or senior citizens. A glaring example of the lack of customer-centric focus is the lack of feeder transport to shopping malls from public transport points.

To think that neighbourhood small retailers will be wiped out by large MNC supermarkets is to ignore the realities of urban India. What will happen is not clear, but it seems that both forms of retailing will co-exist with their own customer bases. Some small retailers may make franchise or marketing arrangements with large retailers, which could be a win-win situation. Therefore, it would be premature to assume that FDI in retail will automatically lead to job losses. In fact, there could be a net job addition due to new jobs being created in the retail sector.

FDI in retail could benefit farmers and consumers through better farm procurement prices, backward linkages and firm production contracts, higher quality and branding, less losses due to spoilage of products, and more reasonable prices for the consumer. However, it remains to be seen whether these positives will be actually realised in practice. The Government needs to keep a careful watch, report periodically on the situation and take appropriate corrective measures.

PETROLEUM REFORMS

Another concern is that large MNCs would tend to source products from China to the detriment of Indian made products. To address this concern, 30 per cent sourcing from MSMEs has been made a requirement. A look at the market even today shows that where Indian products are uncompetitive, Chinese-made products are available. Producers who feel that Chinese products are being dumped can avail of our anti-dumping provisions to get protection.

However, it is a fact that in general, India's manufacturing sector is severely handicapped by infrastructure and transport problems. The solution is not more protection, but measures that make our manufacturing more competitive.

The phasing out of subsidy on diesel and LPG is a welcome step towards rationalising the entire system of subsidies in the Indian economy, which has distorted our budgets and markets and led to numerous malpractices. The phasing out of all subsidies is a must, accompanied by direct cash transfers or a negative income tax for BPL citizens. This will allow markets to function normally and result in greater efficiency in use of subsidies. Future reforms must tackle the subsidies on kerosene, fertilisers, and foodgrains on an urgent basis.

LEVEL PLAYING FIELD

In general, India has viewed FDI with suspicion, and policy has sought to protect Indian business from foreign competition or takeover. FDI policy even today bears witness to this approach, with numerous sectoral caps and restrictions on business freedom in the name of protecting Indian business interests. It is time to do away with FDI caps and restrictions on business and allow foreign and domestic players to compete on equal terms. The move towards setting up an independent National Investment Board for large-scale infrastructure projects is welcome, but FDI policy badly needs to be further liberalised.

India is proud of its skilled manpower, which has so far enabled it to emerge as a major and dynamic services provider to the global economy. However, other countries are catching up. India needs to carry out major reforms in its higher education sector, and the Bills pending in Parliament need to be passed.

Today we have hardly any universities in the world's top 200 list. Huge improvement in quality and quantity is needed in our higher education sector, which could be achieved with the participation of foreign partners. If this is neglected, our services sector will fall behind in the global competition, and our youth will be forced to go abroad in search of better education and skills.

Other reforms, such as easier access to ECB and rationalisation of the tax regime, have already been welcomed by market indicators, and increase in investment flows. Given the international scenario, if India can move ahead with economic reforms which allow maximum of business freedom and minimum but effective regulation, it would reap good dividends in the form of investment and technology flows.

Business Line : Columns / Bhaskar Balakrishnan : Needless misgivings about reforms
 

nrj

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Retail sector may see fatter pay cheques, post FDI

Foreign Direct Investment (FDI) in retail may have created a lot of fracas in the industry, but it is likely to have a positive impact on the salaries of people employed in the sector. Industry players feel that the overall perks and compensation could increase by 15-25 per cent from current levels.

Industry experts say that the packages paid by Indian employers have to be at par with the foreign players or else the sector could see a rise in attrition rates. At present, attrition rate in the sector is at 25-30 per cent and is usually due to low packages, poor working environment and odd timings.

"Retail is going to be a more organised and established industry in the country, and it works in various formats such as hyper mart, super mart and cash-and-carry. FDI in retail will create competition to retain talent. As a result, they will have to pay more and provide a better working environment," said Sunil Goel, Director of executive search firm, GlobalHunt.

Though the sector has created employment across levels and can absorb a large pool of grass root level resources, FDIis bound to have a negative impact on front-end jobs. Foreign players would bring technology-based expertise with them which would not require more people, said B Venkataramana, Chief People Officer, Landmark Group India, a part of Dubai-based retail chain. This means, there would be less requirements across profiles such as sales, supply chain executives, security personnel, attendants, in-shop supervisors, floor managers and warehouse supervisors.

"People employed at the store-level are bound to reduce by 30-40 per cent. Retailers will be forced to pay fat salaries to less people. However, it will bring in good human resource practices and employers will demand niche skills," he said, on the sidelines of the India Retail Forum.

"People move with a brand name and professional environment. They would like to associate themselves with a Walmart instead of some AC Sharma kind of store," said Ketan Vyas, MD (India) of German-based shoe care company Woly.

However, according to Indian Staffing Federation (ISF), apex body of the flexi staffing industry, FDI has the potential of creating around 4 million direct jobs and almost 5-6 million indirect jobs over the next decade.

Business Line : Industry & Economy / Marketing : Retail sector may see fatter pay cheques, post FDI
 

nrj

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PMO tells DIPP to probe Walmart investment in Bharti venture


The Prime Minister's Office has directed the Department of Industrial Policy and Promotion (DIPP) to probe the alleged "clandestine investment" by Walmart in the multi-brand retail sector.

This follows a letter from CPI's Rajya Sabha member M.P. Achuthan to the Prime Minister recently pointing out that Walmart has already invested $100 million in the multi-brand retail sector without reporting it to the Reserve Bank of India.

Citing an answer he had received in the monsoon session, Achuthan said Walmart "masqueraded" the investment as FDI in services sector. He said in the letter that Walmart and the Bharti Group "connived together, schemed and hoodwinked the Government and the RBI".

The PMO, Government sources said, has taken note of the letter and has asked the DIPP to investigate.

Asked if DIPP was probing the Bharti-Walmart issue, Commerce Ministry officials said the DIPP may look into the issue as the PMO has directed it to.

When contacted, a Bharti Walmart spokesperson said, "We are in complete compliance with all regulations. All details have been shared with the relevant authorities."

However, Achuthan told Business Line that a probe by the DIPP is not enough. "Commerce Ministry apparently has helped Walmart and Bharti to reach such a deal. So, DIPP probe will be an eyewash. The Finance Ministry should probe it," he said.
 

cloud_9

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Punjab Chief Minister Parkash Singh Badal on Tuesday favoured public-private partnership (PP) mode for setting up of agricultural markets.

Speaking at the global conference on wholesale markets here, he said this would enhance remunerative income of farmers by improving their marketing network. "The government of India has proposed a draft legislation which provides for establishment of private wholesale market network. We also need to promote public private partnership in agriculture markets. Accordingly, the Punjab government (has proposal) to amend existing legislations (APMC Act)," he said.

A proposal to allow private companies to set up market yards in Punjab which will provide alternate marketing channel to farmers has been sent to the state government by Punjab State Agricultural Marketing Board (PSAMB). Besides, the board that controls marketing network of agricultural produce in the state has proposed direct purchase of farm produce. It has also mooted a law for contract farming in the state.
This would entail carrying out amendments in the Punjab Agricultural Produce Markets (APMC) Act 1961.

"We have submitted a proposal to the Punjab government to allow private companies to set up market yards in the state along with the direct purchase of farm produce and law for contract farming," PSAMB General Manager S S Randhawa told PTI.

"Necessary amendments will be required to be carried out in APMC Act by framing rules and laws before allowing setting up of private market yards, direct purchase and law for contract farming," he added. The amendments in the APMC Act has been hanging fire for the last several years as SAD-BJP-led Punjab government could not carry them out allegedly due to pressure of commission agents. The direct purchase of crops from farmers will allow them to fetch better returns for their produce. The Haryana government had already allowed direct purchase of horticulture produce from farmers. The framing of law for contract farming is aimed at reducing disputes among farmers and corporates on agreements signed between them, sources said. Proposing more reforms in agricultural produce marketing sector, PSAMB has also suggested for setting up of special markets for particular commodities and single license for all the market committees.
 

Tolaha

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A nice article on the benefits of technology, in context of FDI!

Just have a look at the comments on the article in the link. Most of the folks just aren't trying to understand the author's view! :tsk:

Why job losses are good for us - The Economic Times

In the debate over multi-brand foreign direct investment (FDI) in retail, opponents repeatedly highlighted potentially large job losses and closures for small retailers (kirana shops). Astonishingly, even the left asserted that the interests of the aam bania were more important than those of the aam aadmi.

Proponents of FDI cited studies by NCAER and others suggesting little evidence of mass job losses. The rate of closure of kirana shops near big retailers was estimated at 4.2%, lower than international standards. The vast majority of retailers carried on. Another study (Reardon and Gulati, 2008) showed that in China and Indonesia, traditional and modern retail stores coexisted and grew together.

However, no FDI proponent declared baldly that job losses for uncompetitive players might be an excellent thing. This would be politically incorrect. Yet, the entire success of the market system rests on constantly weeding out enterprises and sectors that are uncompetitive, and replacing them with more competitive ones. That's how capitalism constantly improves productivity, creating higher living standards.

New technology and new forms of business organisation have constantly created new products, better quality and lower prices. These have constantly created new winners, triumphing over new losers. Job loss is a short-term tragedy for the losers, and sometimes a long-term one. Business closures are equally tragic for individual owners.

Yet, humankind has gained immeasurably from the long-term gains of economic churning, and so have many displaced workers and businessmen in the medium-to-long run. The Luddites in England in the 19th century tried to wreck textile machinery that could produce very cheap cloth, killing the livelihood of traditional weavers. In the last 200 years, as the textile industry modernised, it became increasingly automated . Ever-fewer workers were required for each metre of cloth.

Exactly the same was true of industries across the board — the displacement of both workers and businesses was massive. And yet, the end-result has been the most spectacular rise in living standards in history over the last 200 years, up over 700%. The gains have been the biggest in the West, but have been enormous even in countries late to the industrial revolution, like India.

Would humanity have been better off if do-gooders like the Luddites — the equivalent of those opposing modern retail in India — had been able to stop the use of machinery or technology that killed jobs? Not at all. They would have saved old jobs and industries but at the expense of highproductivity new jobs and industries that were the key to prosperity, even among those not connected directly with the industries concerned.

My own industry, the media, has seen huge changes. The first press I saw in my youth was a letterpress: individual letters of metal were manually put together to form a page, a very labour-intensive process. Many jobs were lost when this gave way to the linotype, and still more when photographic machines replaced this.

Yet, the industry employs far more people today than it did 45 years ago, and the new jobs are much better paid than the old ones. Why do tragedies at the individual level translate into massive gains at the national level? Because if our overall aim is to have higher incomes for everybody, that entails more capital per person and newer technology per person.

A modern textile worker operates a machine worth several crores, whereas his old counterpart operated a handloom worth a lakh at current prices. The modern textile worker has an output several times higher than the handloom operator and, thus, garners an income several times higher. There is, of course, a transitional problem. Workers losing their jobs get welfare benefits while they find new jobs, even in the most capitalist countries.

Retraining is also helpful for those losing jobs. Yet, the key aim must be increasing overall productivity, using fewer workers to produce more and better goods at cheaper prices. This is what economist Joseph Schumpeter called creative destruction. The market process constantly destroys the old and uncompetitive, replacing them with the new and competitive.

The US has always been among the most competitive economies because it destroys around three million jobs every month — that's right, every month — and creates three million new ones. The churn leads to everrising productivity. The sons of British handloom workers would not have been better off had they stayed in the handloom business.

Nor will the sons of Indian kirana store owners be better off if they remain as such for all time. Whatever the merits or demerits of foreign retail chains, the killing of kiranastores by Wal-Mart is not a key issue.

In the next 30 years, most retail chains and kirana stores are going to be killed by e-commerce. An increasing share of retail purchases is moving online globally, since this is the most efficient method. The technology of the internet cannot be reversed, and so you will not get long debates in Parliament on the terrible job losses and displacement caused by e-commerce. It will simply happen, and India will be the better for it.
 

amoy

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@Rahul92 some regard below as advantages
1) Out of City Limits - consequently Walmart (I think "Sam's Club" in fact) provides large parking lots unlike in congested downtown. It also contributes to growing new communities. And Walmart does open stores within city limits too at least here.
2) Everything under one roof: People's lifestyle changes thanks to phase-in of megastores as well.

Walmart and many others did adapt to different biz environments
4) Home delivery And Credit: Here Walmart provides home delivery for free for big e. appliances
5) Idea of buying a month's Supply: Not always so

No doubt it's an illusion one biz model can be transplanted intact to succeed.
 
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Raj30

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FDI in retail: Global retailers like Wal-Mart, Tesco, Carrefour and others not buying India story - The Economic Times
FDI in retail: Global retailers like Wal-Mart, Tesco, Carrefour and others not buying India story

NEW DELHI: Four months have passed since the government braved intense opposition to allow foreign supermarkets to enter India, but it has not received a single investment proposal so far as global retailers play wait-and-watch and seek more clarity about the conditions imposed on their entry.

The delay is beginning to irk the government, which almost put its survival at risk over this controversial issue. A top executive with a global retailer told ET that in a recent meeting with a senior commerce and industry ministry official, he was asked when his firm would submit its proposal for opening multi-brand retail stores in the country. "We have done our bit, when will you do yours?" the official bluntly told him.

"The authorities seem to be under some kind of pressure, after going through so much to open this sector. But we need some clarifications before we start here," said the retail executive, who did not wish to be named.

In September last year, the government allowed foreign supermarkets to own up to 51% in local ventures, but imposed stiff local sourcing conditions as well as investment restrictions.

Kishore Biyani, who owns India's largest homegrown retail house, The Future Group, said these riders are preventing electronics, fashion garments, and other retailers from firming up their India plans. "How can they source 30% of their goods from small-scale industries? Or even invest $50 million in the backend over three years? Fashion or electronics does not require that kind of investment in the backend,'' he said. Biyani is looking for foreign partners for his retail businesses.

The government has imposed two significant riders on foreign retailers. First, they will have to compulsorily source one-third of the products they sell from small and medium enterprises whose investments do not exceed $1 million in total. Second, they will have to invest at least $100 million, half of which has to go into backend infrastructure over three years.

Foreign retailers, including Wal-Mart, Tesco and Carrefour, are seeking clarification on these riders. Sir Richard Broadbent, chairman of Tesco, met Commerce and Industry Minister Anand Sharma in Davos last week and sought clarity on the conditions imposed on the retail FDI policy. Walmart International CEO Doug Mcmillon also told the minister that his company was "excited about India", but was currently studying the conditions. "We are looking at clarity on those conditions. All those conditions have certain implications on the overall business viability," Sameer Barde, a spokesperson for UK supermarket chain Tesco in India, said.

"Each one of them has to be clearly understood and then only we will be able to take a call on when to proceed with our plans." A Walmart spokesperson in India said the company continued to study the requirements placed on FDI in multi-brand retail to better understand how its business would operate in a complex environment. Some retail experts, however, feel that foreign companies are deliberately going slow in India.

"There is no real intention (on the part of large retailers) to enter the country at the moment. Had it been so, they would have lobbied hard with the government to ease rules like IKEA did,'' said Harminder Sahni, MD of retail consultancy firm Wazir Advisors. IKEA, the world's largest home furnishing retailer, was also confronted with strict local sourcing conditions under the single-brand retail policy. But it was successful in convincing the government to dilute these norms. Abhishek Malhotra, partner at consultancy firm Booz & Co, said global retailers would wait for six to nine months to see how things pan out.

"They are watching the political landscape and trying to figure things out," he said. The vigorous resistance of BJP, India's principal opposition party, to the entry of foreign supermarkets has come as a surprise to many observers and analysts. The party forced a vote in Parliament on the issue, and if the minority government of
Manmohan Singh had been unable to muster the numbers, it could have decisively crippled the UPA coalition.

Even now, the opposition of BJP and other political parties continues to be significant as the Centre has left it to state governments to decide whether they would allow foreign retailers to open stores in their respective states. Almost two dozen of India's 35 states and union territories, including key states like Tamil Nadu, Karnataka, Gujarat and Uttar Pradesh, have decided not to allow foreign retailers.
 

sob

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The Government does not have the will to carry out it's own programmes and they blame others for obstructing reforms.

It took months after single brand retail was okayed to get IKEA to sign the dotted line. The desperation of the Government has allowed IKEA to get quite a few concessions, and now the signal is out to all the biggies in the retail world. Hold out and you can get all sorts of concession from the Indian Government.
 

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