FDI in Retail – Rhetoric and Reforms

by Amit Bhushan on Monday 24 September 2012, 10:44 PM | Category: Strategy| View: 1528 views


FDI in Retail – Rhetoric and Reforms
By: Amit Bhushan Date: 24/09/2012
Soon after announcement of FDI in Retail being notified as acceptable policy by Government of India (apparently with a lot of caveats), the political focus in India shifted to the perceived hazards posed by Wal-Mart to millions of small shop-keepers across the length and breadth of the country. The party in governance as well as political opposition is both equally responsible for the nuisance being dished out as sensible debate for public consumption. This seems to be making no one but the mandarins in media, a happy lot, for they get a few ‘popular' but dumb charades of the political parties in their studios to debate on the frivolous. The debate was first initiated by scion of a political party during elections for the ‘Raj' of the largest province in the country. The ‘sops' for support of such policy, as was proclaimed, was that famers such as ‘potato cultivators' would be able to reap a bonanza, if FDI in retail were to be permitted. However, fortunately the country didn't bother give even a second look to the façade concocted to garner a vote share.
The same argument was again taken up by the political managers of the party in governance to support the government's move to mandate FDI in retail. The opposition got animated all over to formulate its version of humongous impact that would cast a pall over millions of small retailers (with approx. 50 million dependents) across 600,000 villages, towns and cities of India. All this when the policy limits the FDI retailers to some 50-60 cities whose population is over 1 million. Both sides are indulging in an unnecessary rhetoric designed to confuse their political followers and confuse fence-sitters that their party's policy is in the best interest of the nation and would either unleash meteoric rise of the economic might or would prevent a stupendous downfall of the ordinary people of India. The idea that this should even get discussed on ‘primetime' is incredibly ludicrous.
It can be anything but sheer non-sense that internationally reputed retailers would be interest in nurturing a consumer base amongst the Aam Admi of India who draws a meager salary on INR 10,000-50,000 pm or USD 200-1,000. Only approx. 40% of our 400 million households will fall in his bracket. Some 3-5% or 12-20 million household would be in higher bracket and still may not meet the cut-off standard to qualify for being the target audience for global retailers being available in abundance in those cities available for FDI retail investments. As for the rest of the households, they may be well below poverty line to even qualify as consumers.
This would actually bargain a reverse question i.e. Would opening up of the FDI in retail lead to any form of reform at the ground level. What about the revolution in the Farm to fork supply chain that this is supposed to bring ??? How much reduction in wastage in the farm economy and better income to farmers ??? Though Wal-Marts of the world have experimented models by investing in some model set up but that those models are commercial success by the standard of Wal-Marts is far from truth. However, most likely global retailer would continue with such experimentation if government policies are supportive and also to gain a foothold and some first-hand experience of the vast population and territory of India. Jury is yet to be out on what would succeed and who takes home the winning trophy by identifying a right success model first.    
As a large nation of largely poor people, we hold little attraction for global retailers who may only be interested in more affluent sections of our society. However, the buying behavior of our population as well as rising level of incomes among our middle class may hold some clue and attraction for the global retailers. The Aam admi earning USD 200-1,000 pm spends anywhere between USD 150-550 pm on food and daily need items such clothing. The meager sums may not hold much interest amongst the global retailers themselves, however some brands try to occupy mindspace of the rising consumer class may offer incentives to the global retailers to push consumer their brands and therefore occupy an aspirational status in the country.
Also, the Aam admi's purchase on home in USD 20,000- 50,000 and this expense is made within 6-24 months. This gives rise to an opportunity amongst global retailers to offer ‘organized retailing' for construction materials as well home décor items to Indian consumer. As of now most of the market is in hands of unorganized sector or badly organized sector which tries to do everything to gobble up the savings as well as loans arranged for the purpose by the Aam admi. Not once, I am trying to suggest global retailers taking up Real Estate development, but only material supply to this sector which is dependent on Aam admi's purchase of the property or in smaller cities, it is aam admi himself arranging construction as well. A way to crack open the market by assuring quality of material used for a construction including assimilation of global standards could do the trick nevertheless can be a real challenge in a country where judicial as well as political process is subject to a high degree of manipulations and most of the machismo is on display by mandarins in the real estate sector. Some player who can ensure cost effective distribution of quality goods across the cities and manages to tie-up construction barons possibly by carting their properties could do take home victory trophy.   
The other big opportunity could be ‘event' shopping for occasions such as marriages or similar events. The Aam admi is known to splurge USD 5,000-25,000 on such events. This shopping is done through years of meticulous savings and is most done in a span of less than 6 months prior to such events. Again like retailing of construction goods, the sector has absence on organized sector. The small time frame window for buying a large variety of wares from clothes, jewellery and food/catering amongst other household stuff needs to be targeted in a specific and better organized manner. Cash rich retail format may devise specific programs to tap such a market for a meaningful shop spends and also satisfy the ‘brands' pushed to such consumers.
Unfortunately, our politicians unnecessary drag feet on making a mountain of a mole hill and keep their audience entertained with their talking skills rather than delivery. Its time the youth of the nation wakes up to the real world lest time would slip away for progressing ‘self' and some other nation would take away the cake.    
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