FDI in Retail: Elephants and Cars will share the Highway in India
India's Retail sector is about $500 Billion of which only 5 % belongs to the Organized Retail. FDI is expected to significantly change this equation. On paper FDI seems promising. FDI will benefit the whole ecosystem. Farmers will get better price for their crops resulting from the elimination of middlemen. They will have access to knowledge, tools, and best practices from around the world for improving the produce output and quality. Today FCI (Food Corporation of India) does not have enough warehouses to store crops and in many cases the crop is left in the open resulting in high shrink. FDI will hopefully build enough warehouses to stock this and control price fluctuations. From a consumer perspective they will be assured of the most competitive price and quality. FDI will also generate a lot of employment; current estimates are that 10 million jobs will be created over next 10 years. I do not see FDI resulting in elimination of Kirana stores (Mom and Pop Stores) but see an exquisite balance where both formats can co-exist. Today there are about 10 million Kirana stores in India. I see FDI acting as suppliers to the Kirana stores who in turn will reach out to the end consumers. Kirana stores will also get training and support from FDIs i.e. I see Kirana stores becoming more organized or operate loosely as franchises for FDI Retail stores. In the cities, where majority of 250 Million Indian Middle class resides, FDI Retail formats will have the maximum appeal but then FDIs will have to rely on Kirana stores to reach out to the masses in rural areas. FDIs in fact will become the new middlemen between farmers and end consumers. Government needs to ensure that they control FDI Retail by framing policies which protect the interests of Indian Farmers, as an example do not let FDIs import sugar if World sugar price is lower than the minimum support price in India. This will not be seen as an unfair trade practice. Even countries like USA protect certain food sectors like the Sugar industry. FDI in Retail should not be seen as a threat but as an opportunity to significantly streamline the supply chain, distribution network, optimize pricing, and improve customer satisfaction and quality of life, co-existing with the Kiranas but gradually transforming them. Elephants and Cars will share the Highway in India.
Posted on behalf of Thomas Mathen