The Great Indian retail debateDecember 2, 2011 / By
High streets as a retail format have dominated the retail landscape of urban India for a long time. With increasing globalisation and cross-cultural migration from within as well as outside India owing to rapid expansion of businesses across regions and territories, the consumption pattern of the country’s working class went through a notable change in the past decade. With growing consumerism and continued economic expansion in India came the wave of retail revolution through penetration of organised retail, to cater to the demand of Gen-Y or the millennial generation.
The introduction of organised retail business in the early years of the past decade followed by growth and adaptive development of the same in the past five to six years has set up a stage where the country’s organised retail landscape is all set for a grand metamorphosis. At this transformational phase of India’s retail industry, the Indian government has proposed the opening up of the sector to foreign domestic investment (FDI) on 24th November 2011.
Proposed FDI Policy Framework
- India will allow foreign groups to invest up to 51 per cent in multi-brand retailing.
- Single brand retailers, such as Apple, Nike and Ikea, can own 100 percent of their Indian stores, up from the previous cap of 51 percent.
- The opening of retail competition will be within India’s federal structure of government. In other words, the policy is an enabling legal framework for India. The states of India have the prerogative to accept it and implement it, or they can decide to not implement it if they so choose. Actual implementation of policy will be within the parameters of state laws and regulations.
The move has a positive impact on the industry and is a much awaited move which could bring more emphasis on:
- Modern technology
- Improving rural infrastructure
- Reducing wastage of agriculture produce
- Enabling farmers to get better prices
- Generate more jobs in the country
Caveats & Intent
- Nearly a third of the goods to be sourced from small and medium-sized Indian suppliers
- This move is aimed at retaining the interest of small and medium enterprises (SMEs).
- The foreign players should confine their operations to 53 cities with a population over one million, out of some 7,935 towns and cities in India.
- This move is likely to enable the foreign retailers to have full access to over 200 million urban consumers in India.
- Single brand retailers must have a minimum investment of US$100 million with at least half of the amount invested in back-end infrastructure.
- This move is aimed at strengthening – cold chains, refrigeration, transportation, packing, sorting and processing to considerably reduce the post harvest losses thereby ensuring remunerative prices to farmers.
Multiple stakeholders including retailers, policy makers, traders and multinationals corporations among others have got in to the Great Indian Retail Debate as the government contemplates to implement the proposed FDI framework. While the industry welcomes the government’s move to open the retail market to FDI, the fear of competition from foreign players in the local retail turf is a cause of concern for the critics. In my view, the challenge is actually to the foreign retailers who gear up to compete with the local mom and pop store, given the low penetration of credit card and car ownership primarily in the tier 2/3 towns.
Despite lack of support through FDI measures in India, many of the international retailers have been provided innovative routes in the past to cater to the rising need for organised retailing in India through – franchise agreements (eg: Dominos, Pizza Hut), cash and carry wholesale trading (eg: Metro, Walmart, Carrefour), and strategic licensing agreements (eg: Mango’s tie-up with Piramyd, Spar’s tie-up with Radhakrishna Foodlands Pvt. Ltd).
The projected rise in mall stock in the country from less than a million sq ft in 2000 to nearly 100 million sq ft by 2015 is a clear testament to the demand for organised retail in India. Despite such encouraging headline figures portraying historical growth of the sector, what India lacks in today’s competitive global landscape is the support infrastructure that includes – modern product source management, logistics, supply chain management, road networks to ensure efficient transit of goods and materials; and reducing wastage of agriculture produce thereby enabling farmers to get better prices.
Thus, the reform is here only to enable the modern organised retail segment to grow in a controlled and collaborative environment, with the benchmarking and adoption of global best practices. While this step would further aide in creation and enhancement of a wide spread retail landscape, this would also lead to superior shopping experiences at fair prices for the Indian consumers.
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