FDI in retail: Walmart and corner stores can co-exist

IANS, September 02, 2012

A fierce debate is raging in cyberspace over the cost and benefit of foreign direct investment (FDI) in multi-brand retail as the Indian government has once again begun working for its rollout as a ‘must do’ economic reform. And most say there is enough room for global giants like Walmart and the unorganised small retailers to co-exist.

“I think there is ample room for organised large-scale retailers such as Walmart, as well as the mom & pop round the corner stores,” said Sudhir Gupta, managing director at Jaipur-based Enterprise Development Associates.

“Walmart does not give credits and they do not deliver small orders to your doorstep… the mom & pop store will go miles to deliver a small order; both have their advantages and both are necessary for a large economy,” Gupta said.

In November last year, the union cabinet decided to allow up to 51 percent foreign direct investment in multi-brand retail. But the move was kept in abeyance following protests from opposition as well as some of the allies of the ruling United Progressive Alliance (UPA), especially the Mamata Banerjee-led Trinamool Congress.

Sumit Majumdar, professor of technology strategy, University of Texas, Dallas, says superior technology and knowhow would come along with the FDI which will benefit the Indian economy.

“Indian industry has a bi-polar structure, with room for the large/very large firms, possibly all foreign, and small/tiny firms. In retail, the evolution of a similar structure can be very good for consumer welfare, assuming real prices at the check out actually drop because of presumed capabilities and productivity,” Majumdar said.

Majumdar, author of “India’s Late, Late Industrial Revolution: Democratising Entrepreneurship”, said greater competition resulting from the FDI in the retail sector would lead to lower prices, which will ultimately benefit the consumers and common people.

“In retail trade, if because of FDI highly productive and innovative firms come in, and lead to a drop in prices, it is of positive value for consumer welfare,” Majumdar said.

R. Vaidyanathan, professor of finance at the Indian Institute of Management (IIM), Bangalore, however said small kirana stores were quite efficient and the notion of high wastage of food products because of unorganised retail was not correct.

“My neighborhood kirana person starts shop at 6 am and closes at 10 pm, remembers each customer requirements, gives credit if needed, delivers home any time; he is called unorganised since he is not a big company ready to disappoint the shareholders or banks,” Vaidyanathan said in an online debate at live.in.

Vaidyanathan said small business units and non-corporates utilise capital “very efficiently” while big business wastes it since “both bank loans and shareholders’ money can be written off.”

A Jaipur-based businessman Girdhar Bajoria said the neighbourhood kirana stores were more efficient than the supermarket chains.

“FDI or no FDI, with the existing supply chain being what it is, the so-called ‘unorganised sector’ is far more efficient! They can give a run for their money to the ‘organised sector’ any day,” Bajoria said.

Hemant K Batra, secretary general, South Asian Association for Regional Cooperation (SAARC) in Law, emphasised the need for allowing FDI in retail as early as possible, saying some political parties, driven by political considerations, were opposing the move with a “short-sighted approach”.

“For consumer it’s always the more the merrier, the greater the competition, better it is for the consumers,” Batra said.

Kishore Khaitan, chairman of the Rajasthan unit of the Confederation of Indian Industry (CII), said considering the infrastructure bottlenecks and uncompetitive manufacturing sector, India was not yet ready to foreign competition in the retail sector.

“There is a real danger of a surge of Chinese imports as India is not equipped to compete with China on cost, in spite of the increasing wages in China,” Khaitan said.

Pradeep S Mehta, secretary general of the Jaipur-based Consumer Unity & Trust Society (CUTS International), said FDI was good for the economy and opposition to the move was based on various myths.

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