Thursday, October 2, 2014
Home > My thoughts > FDI in Multi-Brand Retail – What it Means to Local Businesses?

FDI in Multi-Brand Retail – What it Means to Local Businesses?

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In the current economic scenario of  India, FDI in any business other than communication and security is good. The important issue is not FDI, but the norms under which the relaxation is happening. Walmart and all other major retailers are in China, but comparing us with China is illogical, because any company that gets in to china will procure the merchandise from the Chinese suppliers, and will help the manufacturing sector of China. However if there are no norms about procurement, then we are actually opening the floodgates for an economic invasion of Chinese goods. Walmart and all other stores that open in India will procure the goods from the Chinese suppliers (and not from Indian suppliers) for better margins. This will destroy the local manufacturing sector and will aid further growth of the Chinese manufacturing sector. At the moment there is only a suggestion (not a rule) of 30% sourcing from India, which is going to be pretty dangerous.

However the media goes gaga over the govt’s move in allowing FDI in multi-brand retail, without looking at the cons. The things to note are

1. Capital: Indian businesses borrow at a much higher rate than US companies, so cheap capital can help the MNCs offer deals which other may not be able to. All players will be forced to cut corners to remain viable. Though competition is a good thing, its not when there is no level playing field. Unfortunately we don’t have a good legacy in terms of check points. The perception that the big boys always get away is fairly accurate as evidenced by the many scams and the epidemic of corruption and the govt of the day having only the goal of maximizing profit for the Family, party and retain power by hook or crook.

2. The truth is this decision has nothing to do with what the people want. Whether its good for them or not is just a side effect. What people need really are just good governance, fair policies and sincere efforts to address issues as they arise. The govt does everything except that!

What farmers need are roads, power and water – same as what you and I want as well.

The biggest con of the whole tamasha is to equate ‘FDI’ with ‘Reform’. No one denies we need to reform the retail sector – better technology, better transport, better supply chain, better infrastructure. if they stop siphoning off money abroad we’ll have plenty to spend here.

I’m reminded of a Dilbert cartoon where the Boss tells Catbert the evil HR genius that ‘cut the salary of all employees by 10% and make it sound like a promotion’. The govt decided to go in for FDI for whatever reason, probably just pressure from the PR firms hired by these companies and the kickbacks. Now the job to ‘make it sound like a promotion’ has been gleefully taken up by the Barkhas, Rajdeeps and white haired eloquent servants of power.

Test of truth: It was revealed that 60 crores was spent by Walmart in India for ‘promotions’ last year. Have you seen anyone disclose that they received a portion of it in public or when pontificating on TV? Not one of them. This is one reason I’m inclined to conclude that most educated elites today are just servants of power and just spew what they are paid for. Take money, no issue with that. But just disclose that you have taken money. Not one ‘expert’ has done that so far unless they were exposed on Social Media. So now you know how the parameters of the debate are set and managed.

I can say that the one thing that history has taught me is: When business houses of India seem happier, the common people of the country are in for a jolt.

Most of the gleeful businessmen were the ones rejecting FDI until their businesses were set up. Now the ones who are welcoming are the ones who are in trouble and in need of cheap capital. Nothing whatsoever in it for the people.

In the classic Grease 2, the teenagers of a High school, as expected, are keen to just ‘do it’. An enterprising kid tries to woo his girl to ‘step out of the boundary’ by appealing to her patriotism and sings ‘Lets do it for our country, our country wants us to’. He even sets up an elaborate fake war like situation to create a sense of urgency and that he has to go fight for Uncle Sam and he may never be back! Well, the kid almost pulls off the scam but for a last minute glitch in his fake bunker, the girl sees through the con job!

I hope the same happens in this FDI tamasha and all these ‘reform for the common man’ is seen for the elaborate con that it is.

 

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About Ajithkumar

I am Ajithkumar, an entrepreneur and a karma yogi. I live by the principle: "Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do". So I do all the things I like with a willingness to accept responsibility for my actions. Connect with me on Google+
  • Akil Junjunwala

    I am not living in india and I can tell u that khols and walmart and kmart know how to bring down their cost and compete with anyone…kiranawallas will be blown away today or tomorrow…god help them….the real issues will come when standards of kiranawallas will increase and will not be able to cut cost anymore…after that prices will increase and so will their cost but these walmarts of the world will keep their cost same or even lower by going to low cost countries like vietnam or cambodia or africe and get these goods…then local goods will not be able to compete and so will the local kiranawalla tht will not be able to goto vietnam…..god help them…oh and then gov will have to support walmart as too many jobs are at stake and will allow them to kill the kiranawallas….

  • Mullah Omar

    I wonder why you oppose FDI. India runs a current account deficit and deficit could be only addressed in one of three ways.
    a. Reduce government expenditure
    b. Allow foreign investment, which will increase economic activity which decreases the deficit
    c. Print money. Printing money is suicidal.

    So it is good to promote FDI

    • Akil Junjunwala

      Did you even read the article? the article is not against fdi, but against the current norms.

      Secondly, even based on your points, the govt can control the fiscal deficit by removing NREGA, or at least making it productive. Think about the coal block allocation alone and look at the loss for the govt. Don’t justify a wong thing for the sake of it.

  • Dananjay

    competition between kirana and super market , is not only at customer end ( its just a small fraction of whole story ),

    Supply side , there will be huge margin given to super market ( because they can bully FMCG etc ).

    Local kirana is already under stress ( Average margin have decline from 10 % to 5 % in last few years.

    So now who will care about small kirana wala who can sell 100 packet in a month ,

    Why will FMCG company will send one man to collect order, one to give the stuff, and finally one to collect money ,

    when FMCG can sell millions of packet through mall in one go .

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