Delayed FDI-in-Retail Helps Reliance

The BJP is up in arms against FDI-in-Retail. But in the not too distant past it was supporting the same FDI-in-Retail. So what happened to change its attitude? Neither the suave sophistry of Mr. Yashwant Sinha nor the legal semantics of Mr. Arun Jaitley who drew distinction between a vision document and an agenda was quite convincing. The RSS is reportedly strongly opposed to FDI-in-Retail. Mr. Sinha and Mr. Jaitley therefore are understandably at pains to offer explanations for the BJP’s somersault on FDI-in-Retail. 

Mr. Gadkari with his more down to earth approach was blunter. He argued very simply for swadeshi. Alas, he drew attention to what Mahatma Gandhi said in an altogether different era when India was ruled by the British over six decades ago. The situation then was very irrelevant to the present context. Would not Mr. Gadkari have been much more convincing had he drawn attention to Indian big business attempting to enter retail? More specifically he could have drawn attention to Reliance Petrochemicals wrestling with its problems while entering the retail market. If it is Reliance that inspires the Sangh Parivar’s opposition to FDI-in-Retail it would have been better if it frankly acknowledged it. No argument is as persuasive as transparent truth. Mrs. Sonia Gandhi’s suggestion to reserve 30 percent procurement for Indian small wholesalers may not be feasible. WTO provisions disallow discrimination. But big Indian retailers by inclination and through official prodding would likely do the needful.  

Reliance has acquired its fair share of critics due to its corner-cutting, carpet-bagging and influence-peddling tactics. But such domestic criticism pales in comparison to the odium that Walmart with its remorseless profit-squeezing tactics has acquired worldwide. And the bottom line is that Reliance after all is domestic while Walmart is foreign. The public therefore most likely would forgive all if the battle were projected between swadeshi and videshi

In 1992 the Walton family that owns Walmart was worth approximately dollars 8 billion. Today its assets have soared to over 100 billion dollars. It earns annually half a billion dollars. Since 2001 Walmart has sourced goods from India. But for bigger goals half a decade ago it opened a liaison office in New Delhi ostensibly for market research but actually to lobby with the government to enter retail trade in India. Walmart’s Delhi office was set up by a senior executive from its international operations, Mr. Lance Rettig. Walmart’s efforts were watched closely by Indian big business aspiring to capture the retail market.  

Indian big business has invested substantially in wholesale and retail trade abroad. In 2010-2011 it invested dollars 1870 million. So, why won’t it invest equally in India? Actually it does. Among big Indian retail players Petrochemical giant Reliance planned an initial investment of dollars 750 million to set up 1,000 hypermarkets. But Reliance is having serious teething troubles. Delaying clearance for Walmart’s entry in Indian retail will give Reliance time to better prepare for offering competition. At the start Reliance hired Mr. Rick Boozell as its Retail Consultant. But Mr. Boozell quit dissatisfied with the company organization. He reportedly said: “I have never seen such a dysfunctional company structure, and at least 75 percent of all resources expended were battling internally, versus trying to take care of the customer. The truth is, retailing is a simple business, and India is aware of this, Reliance wanted to make it a grand business venture, where all the retail leaders sit in nice offices, looking at reports -  while rarely even entering a store. Reliance really never did enter into the retailing business -  at least not a retailing business that the rest of the world would recognize as a modern retailer…There are a few great Reliance leaders who could change this, but their words fall on deaf ears.”

If the FDI-in-Retail decision is delayed it will suit Reliance. Mr. Pranab Mukherjee, an old Reliance friend, is conducting the negotiations with the BJP to settle the FDI-in-Retail issue in parliament. The response up till now by Mr. Advani and Leader of Opposition Mrs. Sushma Swaraj should give hope to Indian big business of a delay in implementing the cabinet’s FDI-in-Retail decision. 

Eventually if FDI-in-Retail does come about how will it affect Indian big business competitors? Actually the fears of foreign competition may be exaggerated. In a perceptive analysis Mr. Samruddha Salvi, financial advisor and sub broker with Edelweiss, has explained why India may become the Waterloo for Walmart. Walmart follows a standard pattern worldwide. Its stores are invariably 51000 to 250,000 square feet and of necessity located away from the city because of real estate costs. Even in Punjab the Walmart Bharti outlet is  away from the city centre. Although the prices offered are attractive, buyers find the wholesale shop too distant to make it worthwhile. In foreign cities shopping in cars is common. People buy for a week’s supplies. Mr. Salvi has pointed out how the typical Indian consumer’s profile will not suit Walmart. 

In fact Reliance started selling goods as wholesalers to petty retailers who would then compete with its own retail outlet. This idea could develop into giving proper franchise to the corner shop in each locality ensuring the right price and quality. Indian consumers prefer the personal touch found in the corner shop and absent in the big chains. The corner shops know best what local customers want. They would offer appropriate products to cater to local demand.

Very soon we will know what happens to the FDI-in-Retail cabinet decision. We will know if Mr. Pranab Mukherjee and the BJP succeed in delaying the implementation of the decision. We will know if Reliance and other Indian players get time to build strength.  


More by :  Dr. Rajinder Puri

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Views: 3363      Comments: 1

Comment I think the solution has to be innovative - how about creating a new plant genetically that consumes water to produce O2 and H2 and grows in sea !!
The hydrogen thus produced will offer a clean and renewable energy.

That BJP wanted FDI in retail during NDA time is a different story - it was realized and mentioned lately that blind reforms were no good and 2004 election campaigns reflected this.

But, the current fight for preventing FDI in retail by them is pathetic, it shows lack of right leaders there.

First, it is done in unconvincing manner (as described in article).
Second, it is done in undisciplined manner within parliament.
And last, it is done without any foresight for their own future - for sure, some day (if productivity of this country has to be increased), there need to be retail chains that offer products at nearly wholesale cost.

If BJP comes in power, and the need arise, how are they going to face public then ?
There are different issues with FDI in retail - consumer benefits by lower prices, employment in retail chain operations and supply and employment loss of small retailers due to competition.

There could have been a discussion on such details at high level in parliament, but the people sitting there prove themselves hopeless again and again.

Unfortunately, the media too did not clarify these items individually in order to inject a clearer picture in aam admi's mind. Everyone was busy talking in jargon that is half understood by viewers and readers. May be, Mr. Katju can point out such deficiencies in media that are better be removed and can be removed quickly indeed.

Dinesh Kumar Bohre
06-Dec-2011 05:14 AM

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