<\/p>\n

This lack of clarity has meant that , while the market opportunity has been positioned to international investors as being national, the rollout is at a regional or even state level.\u00a0 This disconnect is causing industry and investors to adopt a \u201cwait-and-watch\u201d approach as Ajit Joshi pointed out. For example \u2013 the difference in tax rates between states is creating artificial barriers \u2013 leading to the phenomenon of \u201cinter-state smuggling\u201d. Taxes on mobile phones range between 4 and 14.5% – which means that there is a case to sell the product in some states over the others.\u00a0\u00a0 \u201cPolicy focus needs to be on encouraging consumption\u201d \u2013 he added\u00a0 – \u201cand Government needs to see modern retail as being a partner in creating greater revenue. For example, 65% of Croma\u2019s transactions are via credit card \u2013 which means these are legitimate transactions and greater consumption will only lead to greater tax collections\u201d.<\/p>\n

From a supply chain perspective, there were two important insights.<\/p>\n

The APMC (Agricultural Produce Market Committee) is a standard model for selling produce \u201cfrom farm to fork\u201d \u2013 developed by the central government. Again \u2013 the implementation is not uniform and the map enclosed above shows whether or not states have adopted the APMC.\u00a0 Adopting the APMC is part of the clarity required in creating state level trade policy as well as debottlenecking the supply chain. As Bijou Kurien explained \u201cThere are currently three types of traders at the farm gate \u2013 the actual seller, the short term speculator (the Mandi Buyer) and the pure commodity speculator\u201d. Of these \u2013 the Mandi buyer enjoys an information arbitrage because he has his \u201cear to the ground\u201d in terms of local knowledge of crop yield and is able to hold the farmer to ransom, in the absence of a cold chain or other\u00a0 infrastructure which can prolong the life of the produce.\u00a0\u00a0 The \u201cMandi\u201d has outlived its utility and purpose. So FDI rollout is also about ensuring that these supply chain issues are addressed.<\/p>\n

The second aspect is as follows:\u00a0 Opening up retail has to be driven by ensuring that the customer gets a better deal. This can only happen when economies of scale can come into play, and critical infrastructure such as cold chains are created.\u00a0 In every market that has been opened up, Retail sources from SMEs.\u00a0 But, SME\u2019s by their nature cannot provide capacity at the national level, which requires the retailers to develop multiple supply arrangements.\u00a0 A natural process of competitive \u201cweaning out\u201d then takes place \u2013 and pan-national supply and capacity is created over time. In the Indian context, this natural design gets thwarted when you super-impose artificial geographic constraints based on sourcing and back end investment conditionalities at a state level.\u00a0 This \u2013 as Bijou Kurien pointed \u2013will mean that you are \u201cde-scaling rollout\u201d \u2013 which ultimately means that price advantages cannot reach the customer.<\/p>\n

Bottlenecking the supply chain is not good for the farmer either. As Raghunath Dada Patil explained \u2013 the farmer today is subject to so much price volatility \u2013 that he is not able to partner to create scale. For example \u201c In one year Tumeric was priced at Rs. 21,000\/ quintal, the very next year it was at Rs 3,000\/quintal. Some level of volatility is natural and is good \u2013 for example 10 to 15% – but 700% will and does kill farmers\u201d \u2013 he explained, using an evocative analogy \u201cif you want to defang a Doberman, you cut off the entire tail, not half an inch at a time!\u201d<\/p>\n

\u201cAnti-FDI is anti-farmer\u201d he continued, \u201cBecause the producer is also a consumer. The requirement is that the gains from investment in terms of being able to participate in the value creation of contract farming has to trickle down to small and marginal farmers \u2013 then the debate will shift away from whether or not we need FDI to \u201chow\u201d we get the rollout done efficiently\u201d.<\/p>\n

FDI implementation can learn some important lessons from other sectors \u2013 notably the automobile sector. <\/b>As Ramnathan Hariharan pointed out \u2013 in the automobile sector, the Suzuki experience is a good precedent \u00a0\u2013 of using overseas technology collaboration and capital to jump-start the Indian market, and create a large ecosystem of SME\u2019s who feed the market.<\/p>\n

The industry does not need capital for expansion. <\/b>FDI rollout is not about needing dollars or euros to be invested in India \u2013 the gap is that local industry can learn and leapfrog from the decades of international experience available in running large retail chains.\u00a0 In any case, in the food category for example, it will take at least 15 years to scale and profitability \u2013 and so any fears of capital drain via remittance of profits are outdated.<\/p>\n

Relevance of local kiraanas \u2013 <\/b>The panel was unequivocal that FDI is no threat to the local retailer. By definition the local retailer understands the local catchment much better.\u00a0 Increasingly, they are adopting modern trade practices and being treated by FMCG and other manufacturers on the same footing as modern retail \u2013 so there is little question about survival anymore. The question is about how large they will grow \u2013 the panels view was that in a 10 to 15 year horizon, they will still constitute 85% of the market.<\/p>\n

Perhaps the discussion can best be paraphrased from Aripta\u2019s statement. \u201cNow that there is a policy, its upto industry to explain to government the need for two\u00a0 \u201cPreferably\u2019s\u201d and one \u201cMaybe\u201d.\u00a0 In other words, the eventual design of multi-brand policy should focus (as it does for single-brand) on sourcing \u201cpreferably\u201d locally, investing \u201cpreferably\u201d in the back-end, and, maybe, integrating with the e-channel as required.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The panel discussion on FDI in retail was one of the highlights of the Retail Leadership Session 2013, and attracted a \u2018standing room only\u2019 audience. Panelists included Ajit Joshi, CEO & MD, In\uf001niti Retail Limited, Arpita Mukherjee, Professor, ICRIER, Delhi,… <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[8],"_links":{"self":[{"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/posts\/169"}],"collection":[{"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/comments?post=169"}],"version-history":[{"count":4,"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/posts\/169\/revisions"}],"predecessor-version":[{"id":368,"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/posts\/169\/revisions\/368"}],"wp:attachment":[{"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/media?parent=169"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/categories?post=169"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.rai.net.in\/wp-json\/wp\/v2\/tags?post=169"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}