Government v/s FDI: Who will win the battle??

“Govt notifies 100%FDI in single brand retail”- Economics Times, January 10, 2012.

This day shall be marked in the history of the Indian Retail Industry as the Golden day that promised to bring a swarm of dream luxury brands, which every individual yearns for. It brought a reason for the retailers to smile about with the opportunities bundled with the investment.

Then one fine day IKEA placed the “IDEA” on the back burner and Zara faced a road block. FIPB played a villain shattering the dreams of many “retailers to be”.  Government’s policy tantrums yet again disrupted the incoming beatitude.

                         

A lot has been said and nothing has been done so far. To sum it up, it’s just empty words and a huge outcry. The negative impact of FDI in retail on small retailers has been the major concern while rest everything has been neglected. The future retailers have been out casted from the entire picture. From a student’s perspective, its positive effects have been sidelined as FDI is supposed to bring a throng of job opportunities and a chance to work with the international biggies.

India needs to be investor friendly. It must find a middle ground for this issue. It is disheartening to see the blindfolded attitude of the Govt towards the positive outcomes that could be derived from the successful implementation of FDI in the sector. FIPB has refused to accept the Scandinavian furniture giant IKEA’s plea regarding relaxation of the 30% sourcing norm. China has been exporting to India in huge numbers. These imports have already killed millions of small enterprises across the country, and they don't bring FDI. In such a case IKEA which is making a legal entry into the country is not allowed to do so. FIPB has also rejected the Netherland based ZARA’s proposal to enter India with the brand name “Massimo Dutti” saying that the investment for opening the stores is being made by Zara Holding rather than Inditex, the owner of the brand while according to the FIPP rules the investment has to be made by the owner of the brand.

Multi brand retail chains like Walmart are waiting with their eyes wide open in hope and anticipation. With the approval from 11 states & Union territories, UPA Government still failed to gain the support and cooperation of its own allies.

Undeniably, the government is now seriously considering tweaking the definition of small and medium enterprises (SMEs) for giving a boost to single brand retail in the country. Aiming at bringing in more foreign investments in the country, the government wants to remove hurdles in way of such investments from across the sectors, including single brand retail. As per the present definition, all entities having investment of $1 million in plant and machinery would fall under the ambit of SMEs for the purpose of single brand retail. However, as the sector thrives, SMEs would grow and the $1 million definition would need tweaking.

As far as local retailers are concerned, breaking even has not been a challenge for them despite of the presence of the Indian retail giants like Big Bazaar, Reliance, ABRL etc. It is just a hype created by the government along with the opposition playing a spoilt sport. As for them, making a mountain out of a molehill and chanting a chorus of negativity has become a common phenomenon. But by doing this the Govt is subduing the advantages to be derived from the FDIs in the retail sector like the elimination of/reduction in the intermediaries’ cost, the benefit of which will not only be availed by the farmer but will also be passed down to the end consumer, more employment generation, growth opportunities etc. Also, The Economic Survey has pitched for allowing FDI in multi-brand retail, stating it could help tame food inflation and improve agri-commodity management.

The retailer’s cry for FDI and their longing to outshine others still remains unfulfilled. How long the lacklustre attitude of the Govt will last, is not known. But considering the current economic conditions with regards to the impact of the euro zone crisis, falling value of rupee and policy paralysis, one thing is for sure that FDI has become the Holy Grail for the Retail Fraternity. The hunt for which is on!!

What does FDI in multi brand Retail mean to farmers?????

They come, conquer, make you dance to their tunes and take your buck away! It was 64 years back we got our freedom and now when soothsayers point towards the dark skies in times of slowdown foreign money through FDI in multi brand is a scapegoat to revive the economy. But whether its true is hard to tell. The monopolistic buying power of the large retailers would weaken the marginal farmers' position, resulting in lower share of value to them, dictating of the production techniques and output by the larger retailers and destruction of diversity in Indian agriculture. The idea that the farmer will get a better price for his produce if FDI in Retail is allowed is not holistic. The open market does not work on altruism and social service. It negotiates the best for itself so it can corner the most for itself. Farmer suicides are not because they cannot sell, but because they are unable to get remunerative prices for their produce owing to inefficiencies in the value and supply chain, traditional buying and selling techniques in mandis, lack of proper crop management and large number of intermediaries.

Big retailers and food processors alter crop selection to have farmers produce at their discretion and not by will. Corporates would not like to mingle with small and medium farmers because they are at a position of advantage and would strike contracts with a few big farmers thereby making the small ones succumb. FDI in retail would help only those farmers who collaborate with multinationals and accept their conditions, meaning they begin growing only those crops decided upon by their collaborators. In the West corporate retailers control the entire supply chain of food and farmers have no place to sell other than to select corporations. Initially the farmers will be paid as per their demand for their produce by the MNCs. Once the traders are gone, the farmers will be forced to sell at rates dictated to them. Retailers would push the farming community towards growing genetically modified seeds with extensive use of pesticides and chemicals which would impact land fertility intensively.

There is already 100 per cent FDI in the agriculture sector which doesn’t seem to have done any good. There is a vast scope of cold chains to be built and better post harvest techniques to be deployed. If Adani could invest in setting up C.A (Controlled Atmosphere) stores why can’t the so called philanthropists of India Inc. do so? Or are they freezing their money in Switzerland.

The focus should be on revamping the mandis infrastructure and using modern techniques so that the largest chunk of the consumer rupee goes to the farmer and in turn consumers pay lesser price for the commodity they purchase. E-farm is a small start-up which has made use of the best logistic and reverse-logistic practices along with modern sourcing and proper crop forecasting techniques which in turn would help to keep a tab on inflation. Such practices are essential in modernising the agriculture sector.

Corporate don’t source from small farmers but carry out contract farming or approach large farmers. Small and medium farmers till this date approach the traditional system of mandis, retailers and HoReCa source from this channel mostly. The gap between demand and supply today is created by the middlemen by initially paying a higher price when the crop season begins and when the season is at its peak, the middlemen make the excuse of compensating for their losses by reducing the prices and the irony is that consumer is paying the same amount of money. What is threatening is the reduction in the number of options the farmer is left with to sell his/her crop. Foreign retailers would replicate the same practices initially by wiping out the middlemen, then the small retailers and finally the street hawkers. Eventually cartels would be formed by foreign retailers and prices would also be determined by them. Amul, the successful story of India’s dairy farming opposes FDI and Mr. Sodhi GCMMF’s Managing Director says “Farmers get the least returns from the modern trade and the so called efficiency benefits only the large retailers as they constantly drive down the prices” also integration with global retail chains, which operate across the world, will directly expose Indian consumers as well as Indian farmers to any future global turbulence.

*The views expressed in this article are personal and no organization, institution and individual with which the author is associated should be held responsible for this article. The author hails from a farming background and has seen and studied the agriculture/horticulture sector closely.

ZARA: Trend Setter Turned Down

Zara, the flagship company of Inditex Group based in Spain has the famed story of successfully replicating the hot trends of the fashion industry and reaching the wardrobes of its customers in just 15 days. It is not an innovator which believes in creating fashion rather it is an early adopters. It prides itself in manufacturing 11,000 distinct SKU’s annually in about 4-5 weeks against the industry average of 6 months and bravely discontinuing it, if it fails to become the “HOT SELLING ITEM” in the pilot week.

“Government rejects Zara’s holding position in single brand retail” screamed a national daily, which stated the Indian government rejecting its proposal to set up a joint venture company holding 51% stake with foreign equity participation for single-brand retail trading of Massimo Dutti brand which incidentally is a subsidiary of the Inditex group. The reason given was the violation of a rule framed by the Department of Industrial Policy and Promotion (DIPP) under which an investor must own the brand it proposes to bring to India.

The news is surely giving sleepless nights to not only Zara officials, but also IKEA’s top management which is all buckled up to inject 10,500 crores INR in “Third world” countries like India. Can this mayhem be blamed on blurred policies of the Indian government, not only concerning FDI norms but multi layered taxes and nuclear policies as well? In the 2012 Union Budget, Pranab Mukherjee stated that foreign single brand and multi brand retailers have to source 30% and 75% respectively of their goods locally. But the Foreign Investment Promotion Board (FIPB) fails to realise that it is the policies of these globally renowned companies which have made them efficient. Zara buys its fabric in advance in prediction of forecasting trends. Much of its fabric is in greige form which is printed or colored to the desired effect, as when it’s needed. In a country where the lead time for the fabric to reach its factories is 30-60 days, it takes another 10-30 days to create the desired garment which would ultimately defeat Zara’s 15 day theory. Again, it has quality standards to adhere to for which Zara has a vertically integrated organisational structure.

The Indian government should clearly convey to these foreign companies that they have to change their vision, mission and corporate strategies to suit the Indian scenarios if it cannot change or clarify the policies it comes up with. But there is still a flicker of hope that Zara can convince the Indian government to bend its policies and continue to stick to its image of “THE TREND SETTER”.

The world retail industry is counting on it.

The stable called RETAIL- from the horse's mouth.

Hostel life gets to you. More than a year has passed, thousands of  minutes and counting and still no idea where all that time has been spent. Time spend running around completing that urgent assignment, searching for that elusive data, finishing that never-ending report, and going to sleep with each brain cell screaming for its due rest. And then waking up to loud ringing alarms scaring the daylights out of us. Waking up at 9.55 for a 10 AM class. Completing bare necessities while chasing slammed doors, strict professors, and improbable deadlines. A normal day in a retail students life. Our experience certificate for a lifetime of living up to the expectation of bosses, of sweating 8-10 hours a day on the shop floor. Our OJT, short for On Job Training has taught us that much.

Life has become an edited sequence, every unnecessary second trimmed, every unwanted action cut off, editing a Hollywood editor will be proud of. The life of an MBA in Retail student @ BIMTECH. Here’s a sneak peak.

8:30am: The alarm starts screaming. Loud for those lucky enough to be awake(a negligible minority), invisible to those resting those overworked brain cells.

9:00am: Waking up no longer a luxury, now an absolute necessity.

9:15am: Attending those morning necessities that even billionaires and CEO’s cannot do without. Difference is they get 3BHK luxury commodes while we fight for our turn on common bathrooms. Groggy eyed young men swearing at each other early in the morning is good practice for dealing with irate customers maybe.

9:45am: The big question, 15 minutes to class, do we pamper our empty stomachs or our honorable professors. A quick statistical analysis, taking into account the quality of the food, the importance of the class, the character of the individual, and the futility of the hard work results in the exact number of students arriving in class.

10:00am: The most important minute in a retailers life, the LAST MINUTE.

10:05am: The minutes after last. The difference between attendance, good marks, three hours of assignments, presentations, case studies and the occasional hidden nap, and a full relaxed breakfast and a few hours of serenity(ideally more sleep).

1:00pm: Lunch time, the brain so tired that 7 course, 7 star lunches would still be difficult to appreciate.

2:00pm: Back to class. The one’s there since morning envious of those who had their breakfast and rest and come to class, fresh and sprightly. Sacrifices the committed make and the pleasures of the undisciplined.

2:00 – 6:00pm: The eternal fight in the brain where a full stomach fights for sleep and a demanding professor fights for attention.

6:00pm: Class over, the shackles broken, shooting stars of freedom streaking across the dark sky of exhaustion.

And that’s not the end. It’s the beginning of another sojourn, the after class hours.

Time to make group presentations, complete the pending assignments, prepare for impending evaluations. And find those few precious moments to socialise, in person for the lucky few, on social networks for the vast majority. Somebody surely will think of a brain implant for 24hr facebook soon.

Post classes we feel the crunch, bundled up in a bunch. Hanging around the campus, when libraries give abode, sports fanatics to the courts and tables, the scatter and the chatter, and all the mental clutter in a platter! To do or not to do, to go or not to go, to study or to sleep, amidst the big assignments heap! 

As professor Viru Sahastrabuddhe once said wisely, “Life is a race, if you don’t compete, you’ll become a broken andaa!” 

Such is the mantra of corporate life in Retail. You need to be on your toes at all times! It’s a 24/7 job as they say and that’s what we chose to commit to. So, bring it on. Let the hunger games begin!!!

Hello World!!!!

Welcome to the Birla Institute of Management Technology (BIMTECH), Greater Noida Retail student blog!

Take on controversies:

Satyam fiasco or the more recent Reebok India chairman doing a "Jis thali mein khate hain..usssi mein chedh karte hai" or social butterflies Poonam Pandey eh!!

UPA or NDA, the "Annadaatas" only in the election manifestos but fail miserably in the dynamic changes India is subjected to.

But the concern knocking the daylights out of the Government of India , the dominant middle class consumers/producers and most importantly BIMTECH's retail wing is FDI in retail in India which is the locus of discussions in this blog.

The mantra of democracy:The right to speech,the right to expression thoroughly be practiced.

Your suggestions,comments and queries are most welcome. Mail us at retailersbimtech@gmail.com