Thursday, 19 July 2012

Whither to, F.D.Is.?


The recent uproar in response to the President of America suggesting that India has not done enough to create a suitable environment for Foreign Direct Investments in many areas was but natural considering the rather volatile nature of the country’s economy, raising of petrol prices, rollbacks and  an announcement of a rise of diesel prices! The devaluation of the rupee against the dollar are all indications of  the condition of the economy. There are fears that opening up the retail sector to more F.D.Is. would affect the indigenous retail outlets. Local traders fear that larger retail outlet corporations would bite into their business, and edge them out of the trade. The announcement of the Government in January to open all doors to foreign investors in the retail sector caused a hue and cry following which it was announced that the foreign investors would have to buy a thirty percentage of their products from the local retail market.

The past five years have seen the coming and going of various large retail outlets in the country. Subhiksha, a local entity  entered the scene with a lot of fanfare, but then went out like a damp squib! Reliance Fresh outlets disappeared from various important cities in U.P. perhaps because the local fruit vendors and vegetable sellers felt threatened and insecure. The retail market is, however, a very volatile market with retail outlets trying to shave off prices of various products in order to woo customers. In many cases, it is the consumer who turns out to be the winner as in this war of retail outlets, he has better choice in terms of range of products and prices. Allowing more foreign direct investment in the form of collaborations between foreign companies and their Indian counterparts will clearly benefit the end user, the customer who can continue to be pampered for choice. It is true however that producers of farm products and dairy products who sold their products in the local vegetable markets might not benefit too much in the war in procurement prices, as retail outlets are forces to shave prices in order to pass on the benefits to their customers.

It is however difficult to imagine how large retail outlets will  be able to penetrate rural markets in the near future. Vishal, Reliance Fresh and More have quite a good presence in the rural areas all over Northern India.  Exclusive retail outlets found in the metros will not be village bound as their products imported from all over the world are too costly. One example is Le Marche which is no doubt the result of a partnership between a foreign retail outlet and an Indian organisation. I can’t imagine the setting up of a Le Marche retail outlet in a village in Haryana or U.P.! The Bharti-Walmart partnership resulting in the Easy Day brand of retail outlets is doing quite well with prices of commodities being reasonable and within the reach of the common man. I have however seen the arrival of different retail outlets where I live and their quietly shifting shop or closing down completely. Subhiksha came and went away. SRS came but shifted to another part of the city ( Gurgaon ). More, another retail outlet has shifted, sales were dropping and people preferred to go to the local shop-keeper.

Today, I am forced to visit Le-Marche regularly in order to buy Gluten free products for one of my children who suffers from wheat allergy. No other outlet provides gluten free flour. Who knows that perhaps with the coming of more foreign collaborations through F.D.Is. it might be possible to get gluten free products at a cheaper price?

In most metros, where there is a lack of space for the local vegetable market, it makes greater sense to have well designed and accessible retail outlets which also provide a suitable ambiance, air-conditioning and parking facilities. What makes retail outlets a must in urban areas and metros is that where both parents are working parents, it becomes convenient for them to grab some stuff from the retail outlet on the way back home from work. Shopping for provisions from the local market takes time, where you would often have to navigate through narrow lanes and often visit different shops for different products.

It is clear that the fears of increasing F.D.Is. in the retail sector will not affect the indigenous retail sector to a great deal, because, the indigenous retail sector is even today, a strong entity and has a hold which cannot be shaken, at least in the rural and semi-urban areas. In the NCR region to which I belong to, I still notice that people prefer to visit the local provision store and the vegetable market  for monthly stock fresh vegetables and fruits. When Big Bazaar came to Gurgaon many years back, it had a novelty factor. A large number of people thronged the store just to have a look, and not because they wanted to buy anything. Today, only those people visit the store to purchase provisions to last the month (The parking fees of fifty rupees is a deterrent for the casual visitor). Most of the larger retail outlets cater to specific segments of the society. Thus it is most unlikely that people belonging to the middle class will go to an exclusive retail outlet for day to day purchases. The retail outlets that are thriving today belong to indigenous brands, and it is perhaps in this area that there might be some cause for concern in the whole matter. I however feel very strongly that these indigenous entities have no cause for concern because they still have a good hold on consumers coming from the middle class, and this might not be a target audience that can be easily wooed away by more expensive imported products.

Ultimately, it remains to be seen who will benefit from the further opening of the retail sector to foreign investment. The further flow of foreign funds is always a welcome trend at far as propping the economy is concerned. Whether the common man will benefit from this partnership needs to be considered. A mechanism protecting the interests of the local retail market needs to be found. Ultimately, it should be a partnership that benefits everyone.

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