What FDI in Retail mean to us?

November 29, 2011   ·   0 Comments

www.stockssavvy.comThe government announced that it would allow 51 percent (FDI) in the multi-brand retail segment and raise the cap on foreign investment in single-brand retailing to 100 percent from 51 percent.

Multi-brand retail companies are those that sell a variety of products under different brands, like supermarket and chain store operators. Examples of such companies include Wal-Mart and France’s Carrefour. Single-brand retail are companies that sell products under one brand, such as Nike or Levi’s.

India’s retail market is worth an estimated $450 billion, with more than 90 percent accounted for by millions of mom-and-pop (kirana) stores. Organized retail makes up about 5-10 percent of the market.

Who gains?

1)      The first question which comes to mind what happens to Kiryana stores? All the hue & cry made by political parties is actually a hoax for getting votes by proving to the local businessman that they care for them.

There could also be restrictions on where retailers can open stores – companies may only be allowed to open stores in cities with a population of more than one million.

The question to ask here is, will the traditional mom-and-pop stores wither away in the face of competition? The chances are unlikely, because, at the end of the day, those that evolve with the changing market will survive.

In addition, it still remains to be seen whether Indians will actually shop at Wal-Mart and desert their local around-the-corner stores, which offer facilities of home deliveries and extended credit periods to regular customers.

2)      Local Retail Players: The biggest gainers will, obviously, be local organized retail players as well as multinationals who’ve been eyeing a foothold in this market for a long while now.

The easing of FDI norms will come a big relief to these companies because the fact is that  most of them are actually struggling with different financial problems and will be more than happy to ink a deal with a partner who can bring in some badly-needed cash.

For instance, the Future group, one of India’s bigger organized retail players and owner of the Big Bazaar chain of outlets, has debt of about Rs 4,300 crore, according, and is scrambling for ways to reduce that debt.

3)      Curb Inflation: Tie-ups will help improve investments in infrastructure, especially cold storage facilitiesIn fact, these arrangements could also contribute to lower food inflation in a country in which up to 40 percent of fresh produce is wasted because of poor storage systems.

The decision to allow FDI in multi-brand retail is expected to include riders such as a minimum investment of $100 million to start retail operations in the country; 50 percent of that will have to be invested in back-end operations such as food-processing units and warehouses and supply chains as well.

4)      More choices for consumers: Multi-national companies such as Wal-Mart, Carrefour, Metro and Tesco are already present in India, but only in wholesale operations. That means they can only sell to bulk buyers such as hotels and other retailers. Don’t expect them to come sprinting into the retail segment in a hurry. Most experts believe that it could take up to 12 months before a foreign retail giant actually opens an outlet in the Indian market, given the investments needed in the supply chain.

Apart from these, online retail, which is assumed to the next big thing considering the prospects for the growth of Internet in small towns & villages, is going to get its biggest player Amazon which are entering in India in the coming February ahead of all other retailers.

Think how India progressed from 1991 when India opened themselves for FDI for industry. In the hindsight, can you foresee where will be after 20 years in Retail Industry?

Reference: Firstpost

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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