300 years ago British East India Company entered Indian market with a contemporary FDI.* That was a terrible mistake by that time’s decentralized India. Obviously, entry of Walmart, Carrefour, Tesco, IKEA, etc cannot have that level of Imperialistic interest over Indian Geography. But, indeed their target is the market share over the diversified Indian demography. Introduction of FDI in multi brand retail is an opportunity for people to expect something more from the buying experiences, new jobs and a direct impact to achieve a better livelihood. A threat for our neighborhood Kirana shop and established players like D-Mart, Big Bazaar, etc.
Once all hurdles are cleared**; this is will be interesting to see how the transition phase will be going along. The time before materialization of first selling operations by foreign retailers will be the most strategic phase. Today, Indian Retail Sector is a turbulent ship. Players with wrong strategies or weak fundamentals were perished severely in past. Subhiksha, Indiabulls, are such examples. Reliance retail hasn’t made its mark that prominent in this sector, although they have got a robust boosting from the parent group. But also players like D-Mart have a prominent mark in the regions where they operate. They are strategically most correct value retailers. Also, Big Bazaar which I think has the most prominent mark in the retail space (citation needed). What these existing players will be doing in the phase when the giants will step up in Indian retail space. CEOs must have sleepless night while I’m writing this blog. Existing players have two options before the new giants meet someone else approach them and have the most strategic ambitious Joint Venture like Bharti has JV with Wal-Mart; Tata Retail has the same with Tesco. Else, have a self-expansion plan so that the outside giants will avoid entering the kingdom of local giants and will seek other strategic left over locations e.g ambitions of Reliance group. And we have an abundance of such locations. Afterall we are the second largest market with growing purchasing power
As of now no company will take decision to open their value store at the same place where another player is already into operations. It is tough for existing players to further expand their expansion plans when interest repo rates are so high. They are already staring at theirs’ withheld plans from past. The current turbulent phase of global economy is indeed not the right time when government got so proactive for this decision. This is not going to tame high inflation we have today. But, todays’ high inflation has government made realize that essential commodities must have been cheaper if in past the decision of this date would have been made.
Before going any further let us have a broad, high Level Categorization of Multi-Brand Retail with mentions of domestic players and foreign giants
Value Retail – Huge Super Markets (A-Z Departmental Stores)
Indian Player- Big Bazaar, Reliance Mart
Foreign Giants- Wal-Mart, Tesco
Premium Retail – Sophisticated retail outlets, mostly specialized into certain product categories medium to large size wise
Indian Player- Shopper Stops (Apparel)
Foreign Giants- IKEA (Home Furnishing)
Note: - IKEA is considered as a single brand retailer, which has also got clearance of 100% FDI.
Convenience Stores- Neighbourhood Mom and Pop stores, small format chains
Indian Player- More, Reliance Fresh, Kirana Stores (mostly unorganised retail)
Foreign Giants- Seven Eleven
Players in above broad categories in Indian retail segment have fierce competition for market share within their group as well as from outside. They are already struggling with various cost elements which is eating up their profit margins. Many ambitious ventures are being shut down in different segments. They cannot create sufficient demand for their lying inventories which mostly includes the products not commodities.
When it comes to commodities, it is apparent that those who are involved with these commodities (less producing more distributing) are going to be direct beneficiaries. It depends on how the benefit will be passed to the grass root level of peasants and farm owners, etc. Currently, we have networks of middlemen and agro-based industries who are actual beneficiaries of the business. Players will have a fierce competition of bulk buying from these distributors. They will be selling more quantities to single buyers. ***
This all happens in the retail business, but FDI will increase the intensity of these practices. Follow this link for the prototype economic model of a hypothetical GupiansLand covering before and after scenarios of a wealthy external retail player induction into the eco-system.
This prototype model has derived that inclusion of FDI in the ideal scenario taken will not only reduce the commodity cost but inclusion of new innovative products will help the overall turnover of the industry not going in red, but in green. As derived in the prototype, FDI will help in enhancing purchasing power of potential consumers as well as it will create new consumers. Therefore, industry will grow. This will be achieved only when implications of FDI policy will have a direct positive impact over the grass root of macro-economic variables. Government has to ensure people living around poverty line are the actual beneficiaries.
Some will evolve and some will emerge, Some will survive and some will get extinct, some will rule and some struggle. Economy will be drastically transformed at the macro level. As a consumer, we are excited about our higher purchasing powers which will emerge post FDI. As a citizen, we should also expect this should be a win-win scenario.
The political debate which will circle around the Kirana stores(family owned convinience stores) will definately become a national debate. Does our economy will have enough room for everyone. Or this category of retailers will face a severe wipe-out.
Just some Virtual Real and Ideal Thoughts
* East India Company's arrival in India was also an FDI. This FDI turned political and India became a british colony. Taking the economic exploitation by Britishers side apart, the FDI resulted in infrastructural developments as well. That FDI indeed made grouped decentraqlized India a Nation as well. indeed a long debate, altough thanks to @nikhilkardale for letting people identify 300 years back we had our first FDI
**As of now Cabinet has given approval to the proposal of allowing FDI in multi brand retail. The National Drama over this decision is yet to be witnessed in coming months
***Governments control over floor pricing of commodity will help in saving of interest of farm owners. However, government failed miserably in past maintaining such policies. This has resulted in wastage of grains due to improper distribution or farmers throwing away their produce on roads as they have no buyers and lack of storage facilities. We look forward that FDI in retail could bring down some infrastructural revolutions as well to the economy.