FDI in retail and modernisation

The government should immediately permit FDI in retail. This will encourage large retailers like Metro, Tesco and Carrefour to get serious about their India plans. The entry of these international players will usher in a new paradigm in retailing in India.

It will facilitate, among other things, expansion pf product range for the Indian consumer, professional management, latest inventory management techniques, IT systems, management development and training. The fact is that we are scarce of trained retail staff at all levels. Permitting FDI in the retail sector will herald a turnaround in retail management.

Indians are great learners. Having learnt the ropes and nuts and bolts of large-format retailing, it is a matter of time before some Indians become CEOs of large international retail operators like Carrefour and Wal-Mart.

The sad car experience

In the 1960s and 70s, whilst the rest of the world was riding in bigger, faster, more spacious and fuel-efficient cars, India continued to swear by two locally made brands. Then came Maruti. And then Toyota, Mercedes, etc. For many decades, though, we continued with obsolete technologies for unknown reasons. We should not repeat such expensive, time-wasting errors. After all, the primary job of the government is to serve its citizens. Delaying FDI in retail will prevent updated retail technologies and techniques from permeating the sector in India.

The government should be categorical about its retail FDI policy. In recent memory, we have the instance of two ministers having made opposite statements. One mentioned FDI would be gradually allowed; the second seemed confident it would not be permitted! Now, this sends very confusing signals to the investors. We are known to be a land of contradictions and anachronisms. However, when people are going to invest large moneys into the country, they need to know our policies lucidly. We should be cogent in public pronouncements, to foster foreign investment.


Why be terrified?

Organised retail currently constitutes only 2-3 per cent of the retail business in India. Thus, the dreaded phantom of swamping by large retailers is a figment of political imagination. The Indian retail industry is estimated at USD312 billion, with the organised sector contributing only USD8.7 billion. The industry accounts for 10 per cent of India's GDP; quite in contrast, Wal-Mart alone accounts for 3 per cent of the GDP of the United States. 

Cities, towns will be redefined

Eventually, retailers will expand city limits/borders – a concept like Ikea, for instance, would need 200,000 to 500,000 square feet for a good-quality outlet in Delhi or Mumbai. It would be smart to position the outlet outside the cities, where the land and the rentals would be cheaper. Ikea outlets come with restaurants, etc., and would be a shopping outlet for the customers over a weekend. But cities grow and expand, and perhaps a decade and a half later, the space considered outside the city today, would be the city centre!

It would be a serious error on the part of the industry to grudge the capital appreciation or the augmented rentals to the real estate developers and mall builders. After all, these builders and investors are putting in their moneys, buildings and retail concepts on the basis of their faith in the government of India and the consumers. They are takings risks. So, if they become rich, they deserve to.

India should foster modern trade for the economic value added to the economy, the employment generated, and the improved customer offerings. Modern retailing as exemplified through supermarkets and hypermarkets is an imminent phase in India. It can be delayed, not stopped. The government should facilitate, rather than inhibit, it. Why should a billion-strong population not have the freedom of choice, which is the essence of democracy?

(The author worked with Unilever in India, Latin AmericaBrazil and Africa for over 20 years, and was managing director of a Unilever company in Africa. Since then, he was the CEO of a large retail group in the Middle East, managing over 70 retail outlets in fashion, electronics and cosmetics. He is now the CEO of a manufacturing/retailing foods business in the Middle East. He was a Sir Dorab Tata Special Scholar throughout his education, and a Government of India merit scholar. He has authored a book, Agenda for a New India.)