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Cleansing Indian retail

Foreign Direct Investment (a k a FDI) in multi-brand retail is possibly the most progressive reform that India has embarked since 1991.

THIS WILL LEAD to a defining churn in the industry. We will see dramatic changes in the supply chain systems that will bring enduring benefits across the value chain. This will not destroy the kirana shops; just as the KFCs and Pizza Corners did not kill our dhabas.

There is a raging debate focused only on traders and middlemen. The humongous benefits that FDI in retail can bring to consumers and producers have been largely ignored in these very intellectual discussions.

Consider the following issues to appreciate the enormity of the problems we are dealing with:
• India is short by 10 million tonnes of cold storage capacity due to which over 30 per cent of agricultural produce goes waste every year.
• At least 20 per cent of foodgrains that India produces annually is eaten by rodents, thanks to improper storage facilities.
• India, the world’s second largest fruit and vegetable producer encounters close to 40 per cent waste.
• India, the world’s largest producer of milk, wastes each year, the quantity of milk that equals the total milk produced in the European Union.

Attending to these call for investments.The government does not have the money for it. Indian private players may not necessarily have the resources, expertise or the interest.

Game changer

At first, let the foreigners create these permanent facilities and also earn money from them. Even if 50 per cent of the above loss can be translated into savings, the benefits to the nation can be enormous.

Secondly, the farmers will benefit immensely. A CII-BCG report says that an Indian tomato farmer earns 30 per cent or less of the final price,whereas in the developed countries,the farmer receives as much as 70 percent. This scheme, therefore, would be a game changer.

Profits in organised retail is not necessarily a function of volume. In reality, they are made from superefficient supply chain systems and food handling technologies that cuts down costs by eliminating non-value adding processes. Efficiency is the name of the game in modern retail.By calculating the inventory of a store on a dynamic basis, the 

reporting of the stock levels happens in real time leading to sharply accurate purchases.Advanced cold storage systems with standardised grading and quality checks lead to better produce for the consumer and savings for the retailer.

If FDI is allowed, key players who have international markets will invest in India indirectly through tax havens..... Indirectly it will be a round tripping structure which is illegal..... Ultimately, it results in tax evasion, imposition of huge price towards brand cost etc.... They will kill medium level merchants by creating artificial demand for their products... – Dwarakesh Sridharan

Lastly, we must remind ourselves that an FDI in retail is no substitute for investment in basic infrastructure by the state. Walmart can invest in large and technologically advanced cold storage warehouses but it is for the state to provide continuous electric power to run them. Tesco can bring in large modern freezer trucks to transport their produce from warehouses to its stores but it is for the states to build good roads. What India needs is massive investmentsin its crippling infrastructure but let’s make a beginning somewhere through the process of FDI.

FDI in multi-brand retail is here to stay. The process has just begun.During his 1991 Budget Speech, Dr Manmohan Singh quoted Victor Hugo’s words: “No power on earth can stop an idea whose time has come”.(Drawn from various reports and studies)
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