Roundup on Indian Retail Industry

by Deepak Sharma on Monday, December 19, 2005

Check out the roundup on the Indian Retail Industry from the recently concluded India Economic Summit 2005. There are interesting observations and concerns on FDI in retail sector from the who's who of the Indian retail industry.

Co-Chair Sanjiv Goenka, Vice-Chairman, RPG Enterprises, India, said that retailing accounts for approximately 10% of India’s GDP and employs more people than any other industry. The challenges for achieving critical mass and generating employment in the retail industry relate to the integration of small and large retail, the integration of rural and urban markets and the integration of supply chains for a unified market. The issue is foreign direct investment (FDI) in retail; there are concerns that it will create monopolies. Demand impetus should be created through a single market and uniform taxes.

Kishore Biyani, Managing Director, Pantaloon, India, said that FDI has to enter the retail sector sooner or later. India is the last leg of the large consumer base and retail is the last leg of any business value chain. However, he stated that FDI in retail should be delayed. India is giving away a Rs 300 billion market for US$ 1 billon of FDI.

B. S. Nagesh, Managing Director and Chief Executive Officer, Shoppers Stop, India, felt the issue of foreign retailers is being confused with FDI. If foreign brands are allowed to manufacture in India, they should also be allowed to retail. The consumer has to be given a choice of goods.

Hans-Joachim Koerber, Chief Executive Officer, Metro, Germany, a Co-Chair of the India Economic Summit 2005, said investments are needed in the supply chain. Almost all developing countries have allowed FDI in retail in a controlled way. Retailing is a technology-based business. India can wait until Indian retailers wake up or allow the nation’s retailers to benefit from the experience of other countries. A foreign retailer that has local staff does business in a country, for a country, he emphasized.

Suhel Seth, Chief Executive Officer, Equus Red Cell, India, said FDI is not about patriotism but about serious consumer issues. Indian retailers are waiting for better value. If retail prices go down, consumer spending will be spurred, and it is then irrelevant where the money comes from. From a marketing perspective, retail will give consumers more choice and allow local brands to develop.

Jean-Paul Thill, Chief Executive Officer, EMA Region, KPMG, France, said it does not matter where FDI comes from. India’s modernization is inevitable. It has a very vibrant IT sector, while it trails in retail. A mix of investment in cold storage and supply chains is needed.

Samir Modi, Managing Director, Modi Enterprises, India, said the concern is whether India wants organized retail or not. Taxes are too high and too many authorizations are required. Making organized retail easy is what is needed today. Multinational corporations offer margins of 9-11%, which is considered absurd in international markets. Levelling the playing field for the organized and unorganized markets will resolve the FDI question.

Abhiram Seth, Executive Director, Exports and External Affairs, PepsiCo India Holdings, India, said there is no incentive for quality products, especially for farmers. The impact of pricing on farm incomes is high. A 50-paise difference per kilogramme makes a difference of Rs 10,000 per acre of crop for the farmer. An aggregated model to provide better returns to the farmer and better value to the consumer is necessary.

Ajay Dua, Secretary, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, India, said the issue in retail is not limited to FDI. Retail in India represents 11% of the GDP, with a market size of Rs 300 billion, a much larger percentage than in most countries. India has a national policy on manufacturing, agriculture and tourism. Therefore, a national policy on marketing is now needed. There are, however, numerous alternatives with considerable differentiation – wholesale vs retail, rural vs urban, lifestyle goods vs basic goods, etc. Within these lies the issue of organized vs unorganized marketing. Organized marketing has not eliminated unorganized marketing anywhere in the world; the two have to coexist. Organized marketing in India is growing at 18-20% and has given a boost to real estate. It has, however, not helped rural marketing, supply chains, consumption and purchases by tourists. Malls have not started selling ethnic goods either. Some employment has probably been generated. A macro perspective on marketing is needed. Making a policy based on conjecture would lead to improvisation.