Dear Professional Friends,
There is much cry about FDI in retail but on analysis it on economical point of view, I found in present situation, FDI in retails in very beneficial for Indian Economy. If you remember, same type of buzz was created at the time of implementation of VAT in India. Now everyone knows, how beneficiary VAT is and all State including one who were opposed it, implement it later on seeing its benefits. I am sure, sooner than later, same thing is going to be happen in case of retail FDI.
In last 3 years, it is first bold decision taken by Government, it should not take back step now.
Following are few direct benefits of entry of multi brand retail in India:
1) Direct benefit to Farmers: The biggest beneficiary of FDI in retail will be directly the farmers in India. Across the world the big retail giants buy the produce directly from the farmers, thereby eliminating the middle men. Thus farmers will get much better price which can be atleast 15-20% higher than the existing price they get. Thus farmers will directly benefit from direct purchase.
2) Reduction in Food Inflation: The incoming of FDI will bring in strong competition amongst the retailers at the same time the elimination of middle men who are also the hoarders of stocks will help reducing the supply constraint. The direct purchase policy of bigger retailers will help in passing on the benefit of low procurement cost directly to consumers. Thus helping in reducing food based inflation to a great extent.
3) Earning of Forex: India will earn a great amount of foreign exchange reserves from the investments which the mega multi brand retailers will do in India.
4) Huge Employment Benefits: The international model suggests that all those countries which opened up multi brand retail to FDI added huge amount of employment. In India the government expects it to generate atleast 1 million employments over the next few years.
5) Drop in Food Wastage: A huge chuck of almost 30-40% of total food is wasted in transportation and poor storage facilities. Not to mention the millions of grains that rot in Government godown every year. The government has made it compulsory for the foreign retailers to invest alteast 50% of the investment in infrastructure. Thus it will become critical for them to reduce food wastage by making better storage and quick transport facilities available.
6) Better Consumer Choice: The other major beneficiaries will the consumer. Since most of the retail stores operate over a very large format they generally have a large amount of SKUs (products). Thus they will store as much variety as possible. Which generally kirana stores do not keep since they are not sure of its sale.
7) Creation of backend Infrastructure: The government has made it compulsory for the foreign brand multi retailer to invest alteast 50% if there amount into back end infrastructure. Thus giving a boost to facilities like cold storage, food grain banks etc, ..
8) More Purchase from SMEs: It’s been made mandatory by the government for the mega brand multi retailers to procure atleast 30% of its requirement from SMEs. Till today it’s been very difficult for the SMEs to sell their products via kirana stores since non existence of brand. The kirana stores used to reject the goods produce by SMEs due to lower offload.
But the multi brand retailer will have to compulsorily purchase from the SME upto 30%.
10) Overall growth: India's GDP has been slowing down since last few quarters. The influx of foreign funds will lead to huge incoming of investments in critical sectors like construction, employments etc. Such investment will easily contribute upto 0.5% to the GDP growth backed by other critical reforms. Though the government has to bring down interest rates to boost growth, it also has to bring in more reforms.
Biggest Loser will be the middle men, who have been hoarding the goods time and again to make super profits and to work against interest of consumers thereby leading to super inflation.
Thus one can safely say that government has done a pretty good home work before coming up with FDI in Indian multi brand retail. At the same time one must not forget that “Kirana” stores as in India also exists in US alongside Wal-Mart which is mostly in outskirts of city.
CMA Arif Farooqui
Practicing Cost Accountant
Email - arif_cwa@yahoo.co.in
CAclubindia
