Sunday, May 30, 2010

FDI in Indian Retail - Why is it a necessity step?

Thanks to Dr. Singh's attention, Indian Govt has seriously started looking at multi-brand retailing sector opening to foreign players. (

This is a welcome step and an important one. Large retailers will provide muscle of Finance, tools and techniques to currently budding organized retail sector in India. Lets look at some of the major factors where it could impact if done right.

1. Current high inflation can be attributed to 2 reasons,
a) Black marketing and local monopoly of unorganized wholesalers and
b) Wastage of thousands of tons of food.

Both of these can be controlled by good investment in back end supply chain operations that comes with these FDI policies.

2. In a country that has 30%+ food wastage due to lack of basic supply chain efficiency and modern warehouses; large organized retail sector is a must. Moreover govt would demand high investment in backend operations as per this proposal. Theoretically controlling food wastage to 5% can feed all below poverty line and make BPL disappear.

3. Farmers exploitation by local middlemen will reduce and even encourage farming sector to boost productivity.

Only pseudo socialists of Indian politics like Yadavs or pseudo communists like Yechury will oppose above factors.

4. Fair competition is always good for consumers and is proven 100s of times around the world. This will bring choice and shopping convenience to an average consumer.

5. Jobs and Labor Force: Backend operations of organized retailing will create lots of new jobs and front end store support would consume current local job losses easily. One could build a case for a net job addition due to this change.

6. Entrepreneurial encouragement: A fair organized sector will attract people with new ideas and innovations. Combine with open capital investment availability, this can be a boom for new Mittals and Murthys. Who knows we may have a Sam Walton or Jeff Bezos amongst us.

Well, some of the points above are true even right now and are happening already but a large backend investments and modern supply chain experience will take a very long time to come if large experienced players don't enter into the market. We have seen even Reliance and Birlas who invested by and large in front end stores and real estate were not much successful.