Monday, 22 October 2012

FDI in retail

There was a time when my neighbourhood 'mom and pop' store charged me MRP(Max retail price) on everything they sold me.  In fact, I didn't even know that it was MRP,  I used to think that was the cost of the item.  Sometimes they used to give me a discount of Rs 1/- due to lack of change on a big fat bill and I used to be thrilled about it, feeling that the 'mom' or 'pop' gave me a discount due to our cordial relations.  The shop keepers had their own associations and no-one ever gave a discount though you could bargain slightly over the price of rice or wheat etc.

Then came the supermarkets which rained discounts on the consumers.  The volumes of scale at the supermarkets offered lower prices to the consumers who naturally flocked to them.  To keep up with them and retain their old customers even the 'mom n pop' store in my street started offering discounts. So, was the case with all the 'mom n pop' stores or the 'uncle and aunty' stores across the nation.  Suddenly the MRP had lost its significance and the consumer was only looking at 'Offer price' which was (and is) significantly lower than the MRP (that the MRP itself could have been tweaked higher to make the offer price attractive is an altogether different topic).  This naturally benefited every customer with lower prices on every product irrespective of whether they bought from a supermarket or a neighbourhood store.

Though there were organised protests against these supermarkets also, by personnel with vested interests ,they didn't cut any ice with the people primarily because the supermarkets  offered lower prices and more importantly they were fully Indian.  So, the protests died down naturally.

The advantages in a Nutshell, are that it is  expected to bring in much needed investment in the supply chain management, areas of cold storages and thousands of jobs.  This in turn is expected to prevent loss of produce for the farmer and offer more competetive prices to the consumer. There are a few other benefits also listed.  The idea is good and is beneficial to everyone and there should be no doubt in that. What is troubling everyone actually is  the "F" in the FDI.

I am not an economist or learned enough to comment on government statistics on the advantages of fdi in retail. So i will accept them at face value.

But i humbly ponder on the following:-

1. i read that by fdi in retail - we mean a min investment of $ 100 million ( 500 crores) by each company. So, considering that there may be 10 companies willing to invest,  that would make it 5000 crores(even if it is a bit inflated, it doesn't matter as i  again take it at face value).

2. this money would be utilised to set up processing units, storage units, retailing units etc which will be more efficient and as a result be beneficial to everyone.

3. So simplistically speaking, in a country of our size,  if 5,000 crores (or if required even 50,000 crores) could be mustered,  this FDI may not be required. that money could be used to set up the same processing units that the "F" in the FDI would have setup.

4. if that is the case, cant we raise 5,000 crores from within the country through an SPV(special purpose vehicle) floated for this specific purpose.  The shares of such a company could be listed and offered to the public for sale and if efficiently managed would surely return profit.

5. So, rather than a walmart maybe we could have an 'indmart' working on the same principles and guidelines the govt laid down earlier.

maybe the govt economists have already thought over it and discarded the idea on technical grounds but if not, its worth a thought as it will keep the 'F' out of FDI in retail.

We do want the low prices offered by Walmart and Carre four etc and we are thrilled about the extensive variety of goods they have. The only question is - can't we do it on our own?!!

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