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It was a very lively and engrossing panel discussion at IMC as Kishore Biyani , CEO , Future Group and Chairman, IMC Retail Trade committee, deliberated on FDI in Retail along with Chandrakant Shanghavi, Chairman , Foreign Trade Committee, Federation of Associations of Maharashtra. Passions and emotions ran high amidst a packed audience at the Indian Merchants’ Chamber and moderator Pradip Shah, Chairman , Corporate Governance Committee and IndAsia Fund Advisors Pvt Ltd managed to bring the most critical points in sharp focus in this hour long, highly enlightening deliberation. This exclusive discussion was presided over by Niranjan Hiranandani, President, Indian Merchants’ Chamber.
Kishore Biyani strongly felt that consumption was constantly on the increase and there was a clear void in supply to meet this rapidly increasing consumption. “We had only one refrigerator in our house in the good old days, now we have at least two and we tend to stock a lot more" stated Biyani. He further added that increased consumption (approximately 350 billion dollars in the next 7 years) would result in development and that FDI in retail would help us bridge this gap between demand and supply. Ever since the FDI in retail was announced, this was the very first time that Biyani voiced his views in public on the highly sensitive issue. Your friendly local neighborhood grocer would still continue to survive and prosper, said Kishore Biyani, simply because he stocked on an average only 300 items in comparison to nearly 60,000 items by a modern retail super store; and the presumed competition was purely over a very small number of items which again were of limited interest to big stores. “And nearly 60 percent of the populace simply cannot afford modern retail experience and hence would continue to visit the local kirana store” he added.
For those of you who like to feed on numbers, modern retailing an inevitable, inexorable trend of modern living accounts for nearly 6% of the total retail in India or about $25 billion, against $ 400 billion for traditional retailing(2011). In China modern retailing accounts for nearly 20% of the total retail in comparison to 85% in the US. While China permitted multi brand retailing in 6 cities in 1992, India has granted permission in 53 cities with over 1 million population and further extended it to areas within 10 kms of these cities.
Spread of modern retail through FDI would create unprecedented job opportunities asserted Kishore Biyani. “For every 100 sq ft of space that we add up, we will create atleast 2 direct and 3 indirect jobs” he averred. Cost of capital is nearly 13 percent in India as compared to 1 to 1.5 percent elsewhere in the world which was a distinct disadvantage to Indian retailers according to Biyani and hence the need for FDI in retail for the competitive edge.
Chandrakant Shanghavi, another panelist, was passion personified as he vehemently quoted the 2009 Parliament Standing Committee Report where nearly 30 members of all political parties unanimously agreed that India did not require FDI in the retail sector. Predatory pricing was another apprehension expressed by Shanghavi which according to him was standard practice employed by large modern retail stores to eliminate the competition emanating from small retailers. And once they have achieved a sizeable market share and a monopoly position, even consumers would have to dig deeper into their pockets; and hence that consumers would benefit by modern retail was a myth according to Sanghvi. He further took a solemn oath to oppose the FDI policy tooth and nail as he had been doing over the years.
Lots of interesting questions were raised in the subsequent question answer session that followed which also saw a new emerging view that the conventional retailer and the modern retailer could both co exist while retaining their respective market shares. Biyani felt that competition with the conventional retailer, if any, was largely in the grocery and essential items category; this category he felt would never exceed 25% of the total retail in India in the next 15 years in the most optimistic of circumstances and despite the extent of FDI in retail. Modern retail according to Biyani would add new categories which hitherto never existed and the consumer had the right to wide range of choices in keeping with his international counterparts.
With FDI in retail, Is India on the verge of a Retail revolution? Is the policy change another form of crony capitalism at work? Will consumer be the king? And will you still wave out to your local, friendly kirana store buddy on your way to office? Well, for the moment , the Government of India has waved the green flag for FDI in retail and we are keeping our fingers crossed as we await the results over the next few years.
India Infoline Research Team / 14:59, May 20, 2015
GPIL reported 13.5% yoy decline in operating profit as the impact of higher volumes was offset by lower product prices