Thursday, June 18, 2009


The debate about allowing foreign investments in the retail business does not seem to be subsiding though two governments have come and gone since beginning of this decade. While Vajpayee government could not take a decision to allow 100% foreign investments, partial opening of this sector was achieved when cash and carry model investment was allowed for whole sale merchandising. The first UPA government was hamstrung by its vulnerability to pressure by the Left which was totally opposed to organized retailing under the excuse that small business enterprises and family stores would suffer, unable to face the marketing muscle of global retail giants. With new UPA government with a clear mandate, now at the helm of affairs at Delhi, sans the Left, expectations were high that India would open up its retail sector to foreign players soon. How ever the first sign of the low priority for this area came when there was no mention about it in the address to the Parliament by the President and the Government has no intention, at least for the time being, to open up this sector was confirmed by the concerned minister a few days ago.
The ostensible reason for delaying a decision seems to be the stand taken by some experts that their is real danger of large scale unemployment when big muscled retailing giants take over the market, pushing out the 8 million and odd small retailers in the unorganized sector into oblivion. Same argument in the past delayed modernization of food industry in sixties and seventies of the last millennium and setting up of large scale processing units by organized players in food sub-sectors like rice milling, flour milling, oil refining, snack foods, fruit and vegetable processing, meat processing, poultry processing, spice processing, soft drinks etc during the last two decades did not contribute to any significant unemployment. Besides there are big Indian investors equal to foreign companies in terms of resources who are not barred from entering the retail sector by the present policy. The institution of family stores that dots this country cannot be easily brushed away by a few international companies and even if they are affected to any significant extent, it is going to be a slow process spanning many years ahead. The fact that even after the entry of big Indian investors into retailing more than a decade ago, the share of organized retail business has not gone beyond 5% at present is a telling commentary on the strength of indigenous unorganized retailers of this country.
Recent announcement by IKEA, the $ 31 billion, Swedish home products giant putting on hold their plans to open up 25 retail show rooms with an investment of $ 1 billion is a set back to the aspirations of the Indian consumers to enjoy the high quality, innovative, easy to assemble and long lasting home products which happen to be the strength of this company. IKEA, world wide, sells 12000 products through its 296 retail show rooms and is a pioneer in the flat pack furnitures and accessories, bathroom and kitchen items of high quality with novel features. It is beyond any body's comprehension as to how IKEA out lets are going to harm local products because there are no similar products in the Indian market made locally! The high end expertise of IKEA would have helped to horn the skill of Indian workers who are not exposed to quality products in their life. IKEA is already out sourcing from India products worth Rs 1900 crore an year for selling in more than three dozen countries under their brand and this would have expanded several fold if they were allowed to do business in the country. Presently it employs about one lakh people in India for its sourcing operations.
It is really unfortunate that retail business continues to be kept out of the purview of foreign companies who could have brought considerable expertise into the dynamics of organizing and successfully running large scale procurement and distribution of consumer goods. The recent ranking of India as the top desired investment destination for retail business, outscoring Vietnam, Hongkong and others is a wonderful opportunity for India to entice investors with policies that would be equitable to all the stake holders. GOI must provide a level playing field in the retail business and in the interests of the consumers as well as the skilled workers of the country, this area must be open to all investors irrespective of their nationality. One of the tragedies of Indian retailers is that they do not know how to respect the consumers and understand their aspirations. Sooner we have exposure to international retailing culture, better it will be for the country in the long run.


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