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Saturday, February 10, 2007

FDI in Retail in India: What's The Problem?

These days the hot news from retail in India is the alleged letter written by the President of the Congress Party, Ms. Sonia Gandhi, to the Indian Prime Minister asking him to go slow on FDI in retail on the grounds of protecting the interests of mom-and-pop retailers. And all the media bytes going into analysis of this news is amusing me.

First of all, I don't believe that mom-and-pop stores would be adversely affected by the organized retail onslaught. Considering that 95% of roughly 12 million unorganized retailers have a shop area of less than 500 Sq Feet, having a unique set of niche customers, taking their slice of pie would be an uphill task. Impact would be the most on the 5% of unorganized retailers who have bigger shop area. But for the sake of argument on FDI in retail, let me assume that smaller retailers would get affected by organized retail in a big way. And in such an event, how would delay in allowing FDI in retail help protect smaller retailers in unorganized retail sector?

The argument that delaying FDI in retail would help the interests of smaller Indian retailers is nothing less that utterly-butterly hilarious proposition. Today, India boosts of companies like Reliance, Bharti, Aditya Birla Group, and Tatas who have immense financial muscle, global reach, and scale, and who are aspiring to be big players in Indian retail sector. They have even openly declared their war chest that runs into billions of dollars. These domestic biggies are out there to thrash the mom-and-pop stores. In such a scenario, how come delaying FDI in retail would protect smaller stores. The reasoning is sans logic. FDI or no FDI, the retail landscape is not going to change much for mom-and-pop stores, but for big domestic players a delayed FDI would seem like a boon straight from the Heaven (or 10 Janpath!). Now, this is something that is more than what meets the eyes. Was there serious lobbying taking place to get the FDI in retail delayed?

If the government really thinks about helping mom-and-pop stores, it should expedite the FDI in retail. FDI in retail would mean competition to big domestic players from big global players. This would keep the organized retail players, both domestic and global, on their toes and in all likelihood would result in a war of sorts that may ultimately lead to bleeding balance sheets for organized retail. And the customer wins too. In any case, competition is always good for the customer.

Or is it a case of protecting the likes of Reliance and Bharti that the government has been asked to delay FDI in retail? Does a behemoth like Reliance and Bharti need protection? They have financial muscle, global expertise, reach and scale. Then why we need to protect them? If these companies are aspiring for $25 billion revenue from retail, let them slog it out themselves. It's better to throw an equal global lion in the cage to keep these Indian lions on their toes, lest they turn monopolists using their immense power. If a small mom-and-pop store that does a monthly business of Rs.25000 a month can fight it out with biggies like Reliance and Bharti, who are talking about revenues of billions of dollars, then surely Reliance and Bharti can play it out with the likes of Wal-Mart, Carrefour, Tesco and their ilk. The rule should ultimately be same for all.

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