Dear Professionals,
Following are 10 direct benefits of entry of multi brand retail in India :
1) Direct benefit to Farmers: The biggest beneficiary of FDI in retail will be directly the farmers in India. Across the world the big retail giants buy the produce directly from the farmers, thereby eliminating the middle men. Thus farmers will get much better price which can be atleast 15-20% higher than the existing price they get.
In present system the farmers get approx only 30-35% of the retail price, rest all is taken over by middle men like traders etc. For eg during the onion shortage in India most of the hoarding was done by onion traders, whereas they got price as high as Rs. 35 Kg, the farmer got only Rs. 4-5 Kg.
Thus farmers will directly benefit from direct purchase.
2) Reduction in Food Inflation: The incoming of FDI will bring in strong competition amongst the retailers at the same time the elimination of middle men who are also the hoarders of stocks will help reducing the supply constraint. The direct purchase policy of bigger retailers will help in passing on the benefit of low procurement cost directly to consumers. Thus helping in reducing food based inflation to a great extent.
3) Earning of Forex: India will earn a great amount of foreign exchange reserves from the investments which the mega multi brand retailers will do in India. Each retailer is suppose to do minimum of 100 million dollars, considering that setting up an average one store costs 5-10 million dollars, one can easily expect to get investment upto 1 billion dollar from each retailer in total, which can be approx 15-25 billion dollars spread over 5 years.
4) Huge Employment Benefits: The international model suggests that all those countries which opened up multi brand retail to FDI added huge amount of employment. In India the government expects it to generate atleast 1 million employment over the next few years.
It is very critical to note that the government is allowing Foreign retailers to open retail stores in India in joint venture with Indian partners only in top 53 cities with a population of 1 million and above.
5) Drop in Food Wastage: A huge chuck of almost 30-40% of total food is wasted in transportation and poor storage facilities. Not to mention themillions of grains that rot in Government godown every year. The government has made it compulsory for the foreign retailers to invest alteast 50% of the investment in infrastructre. Thus it will become critical for them to reduce food wastage by making better storage and quick transport facilities available.
6) Better Consumer Choice: The other major beneficiar will the consumer. Since most of the retail stores operate over a very large format they generally have a large amount of SKUs (products). Thus they will store as much variety as possible. Which generally kirana stores do not keep since they are not sure of its sale.
7) Benefit to Kirana Stores: Well dont be suprised from this point but its true. As per government approved policy it is compulsory for the mega retailers to have 30% of their sales from small retailers. The Punjab state is a perfect example of this cash and carry model.
At the same time one must realise that the kirana store retailers have been paying a high price to middle men to procure good, which they can now procure at much lower price from the bigger multi brand foreign retailers. At the same time the multi brand retailers with FDI will be allowed to sell only in 53 big cities with population of more than one million. Thus the Kirana stores can directly benefit from buying from cities and selling them in their towns.
One must not forget that most of this big brand multi retail shops will be based on out skirts of city whereas the Kirana stores are in heart of city providing home delivery.
8) Creation of backend Infrastructure: The government has made it compulsory for the foreign brand multi retailer to invest alteast 50% if there amount into back end infrastructre. Thus giving a boost to facilites like cold storage, food grain banks etc, ..
9) More Purchase from SMEs: Its been made mandatory by the government for the mega brand multi retailers to procure atleast 30% of its requirement from SMEs. Till today its been very difficult for the SMEs to sell their products via kirana stores since non existence of brand. The kirana stores used to reject the goods produce by SMEs due to lower offload.
But the multi brand retailer will have to compulsorily purchase from the SME upto 30%.
10) Overall growth: India's GDP has been slowing down since last few quarters. The influx of foreign funds will lead to huge incoming of investments in critical sectors like construction, employments etc. Such investment will easily contribute upto 0.5% to the GDP growth backed by other critical reforms. Though the government has to bring down interest rates to boost growth, it also has to bring in more reforms.
Biggest Loser will be the middle men, who have been hoarding the goods time and again to make super profits and to work against interest of consumers thereby leading to super inflation.
Thus one can safely say that government has done a pretty good home work before coming up with FDI in Indian mulit brand retail. At the same time one must not forget that “Kirana” stores as in India also exists in US along side Walmart which is mostly in outskirts of city.
Regards,
Veeral Gandhi
Hope that his govt. does not rolls back the decision(s).. Frankly saying, the government is doing some aggressive batting in the death overs..
CAclubindia
