Monday, June 22, 2009

Indian retail needs more liberalization

Among the 30 emerging markets, India has become the number one hotspot for global retailers for the fourth time in five years. Global consulting firm A T Kearney's eighth Annual Global Retail Development index has ranked India first in terms of attractiveness as a retail destination followed by Russia and China. India wrested back the top honors from Vietnam, thanks to factors like low inflation and a fall in rents especially in 2 and 3 tier cities. Since GDRI is geared to helping retailers take investment decisions on the basis of criteria like economic and political risks, the report also suggests a broder interest in the Indian economy.

In a recession-hit world, Asian giants like India are being viewed as key to a global recovery. India continues to notch impressive quarterly growth rates. Its domestic demand driven economy has a competitive edge over export led economies. It has a growing and brand conscious middle class, along with an expanding luxury goods clientele. All this has been water off the back of a parliamentary standing committee that's asked for a ban on retail FDI. The committee also objects to large domestic corporates doing business related to grocery, fruits and vegetables. Foreign-Indian partnerships, seen as allowing 'outsiders' backdoor entry , are opposed. The old bogeys are raised: the supposed death of mandis and corner shops as well as job loss.

The fact is that Indian firms not only survived the challenge of foreign specialty in retail, they became more competitive. Nor did the shops around the corner of unorganized retail die out. Big retailers, foreign or domestic, are wrongly projected as bad for farmers and consumers. Supermarket chains can augment farmer's earnings many times over through direct purchase of their produce. Today, it is middle men who gain at the cost of farmers and consumers. Moreover, post-harvest infrastructure in India related to warehousing and processing operations needs improvement. Thanks to poor cold chain management and distribution networks, an estimated 40 per cent of the country's fruit and vegetables are annually wasted. So, in both farm and rural non-farm sectors, the need to increase investment can hardly be overstated.

Go native arguments make little sense in the face of global interest in setting up shop in India. If anything, India's $400 billion retail industry is underdeveloped, with organized retail comprising only 5 per cent of the market. Given that the Manmohan Singh led government seems to recognize the need for big-ticket private investment, the retail roadmap should include further liberalization in single brand retail as well as opening up the foreign multi-brand retail. Mom 'n' pop stores coexist with malls and supermarkets the world over. Why should it be any different for India?

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