Friday, September 21, 2012

Economical benefit of FDI in Retail. Record Your views


on Friday, September 21, 2012

There is much cry about FDI in retail but on analysis it on economical point of view, I found in present situation, FDI in retails in very beneficial for Indian Economy. If you remember, same type of buzz was created at the time of implementation of VAT in India. Now everyone knows, how beneficiary VAT is and all State including one who were opposed it, implement it later on seeing its benefits. I am sure, sooner than later, same thing is going to be happen in case of retail FDI. 

In last 3 years, it is first bold decision taken by Government, it should not take back step now. Following are few direct benefits of entry of multi brand retail in India:

1) Direct benefit to Farmers: The biggest beneficiary of FDI in retail will be directly  the farmers in India. Across the world the big retail giants buy the produce directly from the farmers, thereby eliminating the middle men. Thus farmers will get much better price which can be atleast 15-20% higher than the existing price they get. Thus farmers will directly benefit from direct purchase. 

2)Reduction in Food Inflation: The incoming of FDI will bring in strong competition amongst the retailers at the same time the elimination of middle men who are also the hoarders of stocks will help reducing the supply constraint. The direct purchase policy of bigger retailers will help in passing on the benefit of low procurement cost directly to consumers. Thus helping in reducing food based inflation
to a great extent. 

3) Earning of Forex: India will earn a great amount of foreign exchange reserves from the investments which the mega multi brand retailers will do in India.  

4) Huge Employment Benefits: The international model suggests that all those countries which opened up multi brand retail to FDI added huge amount of employment. In India the government expects it to generate atleast 1 million employments over the next few years. 

5) Drop in Food Wastage: A huge chuck of almost 30-40% of total food is wasted in transportation and poor storage facilities. Not to mention the millions of grains that rot in Government godown every year. The government has made it compulsory for the foreign retailers to invest alteast 50% of the investment in infrastructure. Thus it will become critical for them to reduce food wastage by making better storage and quick transport facilities available. 

6) Better Consumer Choice: The other major beneficiaries will the consumer. Since most of the retail stores operate over a very large format they generally have a large amount of SKUs (products). Thus they will store as much variety as possible. Which generally kirana stores do not keep since they are not sure of its sale. 

7) Creation of backend Infrastructure: The government has made it compulsory for the foreign brand multi retailer to invest alteast 50% if there amount into back end infrastructure. Thus giving a boost to facilities like cold storage, food grain banks etc, 

8) More Purchase from SMEs: It’s been made mandatory by the government for the mega brand multi retailers to procure atleast 30% of its requirement from SMEs. Till today it’s been very difficult for the SMEs to sell their products via kirana stores since non existence of brand. The kirana stores used to reject the goods produce by SMEs due to lower offload. 

But the multi brand retailer will have to compulsorily purchase from the SME upto 30%. 

10) Overall growth: India's GDP has been slowing down since last few quarters. The influx of foreign funds will lead to huge incoming of investments in critical sectors like construction, employments etc. Such investment will easily contribute upto 0.5% to the GDP growth backed by other critical reforms. Though the government has to bring down interest rates to boost growth, it also has to bring in more reforms.  

Biggest Loser will be the middle men, who have been hoarding the goods time and again to make super profits and to work against interest of consumers thereby leading to super inflation. 

Thus one can safely say that government has done a pretty good home work before coming up with FDI in Indian multi brand retail. At the same time one must not forget that “Kirana” stores as in India also exists in US alongside Wal-Mart which is mostly in outskirts of city. 



CMA Arif Farooqui 
Practicing Cost Accountant

Email - arif_cwa@yahoo.co.in 
visitors  are requested to send their comments/views on FDI in Retail Sector or send your detailed view s  to raniraj1950   at gmail.com

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  1. Most of the public is not aware about the long term benefits of FDI and opposition is eying only for the popularity so that they may get more seats in next election.There should be drive to explain the benefits and loss to the public if FDI. There will be loss to middlemen who be worst sufferer. Even today the tomatoes of Rs5/- KGs are sold in the market at the rate of Rs30/- per KG because of these middlemen. The growers of tomatoes are worst suffers and consumers are paying higher cost.The political parties are showing only the disadvantages of FDI instead of benefits. Every antibiotic is having side effect but when we fall sick antibiotic is given because our first priority is to treat disease even after knowing side effect. Side effects are also taken due care by specialist doctor and not by the general public. We have good economists to take care of side effects of FDI but there is need for this antibiotic for various benefits.

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    Replies
    1. Very Good summary of provisions in very precise manner .

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    2. You mentioned the price of tomatoes are rs 30, currently also their are retailers in India, and they also are selling the tomatoes at Rs 30 only, No one can remove middle man from markets, now they are supplying to kirana stores by holding inventory tomorrow they will supply wal-mart and other foreign retailers

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  2. The Finance Ministry should give i importance to agro based industries as it provides employment to illiterate as well as most illiterate(in the labs testing quality etc. etc.)
    As the FMs of independent India has not understood this we are forced to invite.
    Had they given enough.....? importance to the agro based industries on top priority the problems of regional imbalances should not have arisen. Various social issues would not have risen their head and stand tall enough to ? our culture / ethical values / humane-ism of the people of India.
    Those who are against FDI in retiling should first ? themselves whether they have any plan to suggest as an alternative to providing employment and equal importance to all regions as much as agro basd industries give.

    The people who are used to cheat the weak farmers in the form of helping them are opposing it.

    No need to bother.

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  3. The Retails sector is going to be a organized sector. The benefits of the organized sector will be now pass on to the employees and workers of the sector. This is the one of the major push forward to the Indian Economy. The hoarders,black marketers,wholesale sharks,unpatriotic middlemen,anti-social commission agents are now going to pay the price for what they have done for all these years

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  4. Yes FDI has long term benefit to the country but if we talk about whole benefit of the country then govt is trying to fulfill the empty reserves of country which was empty due to big scams and corruption only.

    Poor and middle class people are always killed by such govt. being such cost inflation.

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    Replies
    1. This is very true, but still reforms are welcome.....

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    2. In a multi brand supply chain system inventory cost and price check will be monitored very easily. So far in India farmers are not benefited all these years since Independence. Let us try this also. I hope nothing harm is going to happen.

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  5. It is one of the progressive move of the Government to shore up sagging economy and lift the Indian Image in international market. I do not understand why major political party i.e. BJP is against it. Government should not rollback any of the measures announced.

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  6. yes FDI has long term benefits to the country but govt is trying to fulfill the empty reserve of country which was empty due to only the big scams and corruption.

    only poor and middle class people are always killed by such govt. due to big cost inflation.

    Why do not they take strong action on corruption and corrputed money. Everywhere in our India unsatisfactory issues arising due to improper work of govt and govt departments.

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  7. 1stAdvantage:-Direct Benifit to farmer

    Why we depends too much on Other countries ? if we think to get benefit to farmer so our country also give benefit to their farmer so there is no need of FDI

    2:-Reduction in food inflation:
    if our government do not store a food too much time than automatically food inflation is Decline for e.g.Govt. store the food in there Godown & not sell in the market than that foods demand will be increases & if demand increases than prices also be increase so why they store food for long time ?why the will not sell in the market ?

    3:Earning of forex
    it is not Earning of foreign exchange for e.g.1 foreign company comes in India & invest the Huge Amount in business & they earn the huge profit so that profit is from Indian public so that company will not utilize or use in the Improvement of India they will take there profit in there home town so where is a Forex?

    4:Huge EmploymentBenifit

    I Agree with huge Employment Benifit
    but there is a some unemployment also due to FDI some retailers Close down there Business .

    5:Drop in food wastage:
    if we look to the Agriculture Department so there was a huge wastage of Wheat in last year because of huge storage & no distribution to public ,so obvesialy there is a food wastage

    6:There is a lot of Indian company to choose for consumer so there is no need of FDI

    10:-There is no Overall growth only some polytical parties growth

    Regards,
    Manish Intwala


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  8. The apprehension that many of the small retailers will have to close their shops is not true. Because wallmart etc will not open their shops in large numbers in a city, maximum of four or five shops in a large city may be opened. As such small retailer continue to exist, however their quantum business from existing goods may come down a little. They stand to gain by buying large number of products at a lower price and sell them in their shops to the neighbourhood. All customers will not go to wall mart, every day and they go to wall mart only when the saving is substantial in their purchase. Thus big and small will co exist and only consumption will increase because wide variety of products are available at reasonable price.
    Further there will be good supply chain management in addition to creation of new cold storage and food processing plants reducing the wastage of horticultural products which is boon to the country and farmer.
    Dr. C.V.Divakar, Professor & HOD, Dayananda Sagar Business School

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  9. THIS NEW IDEA IS VERY VERY GOOD FOR NOTHING IT IS NEW SOURCE OF FRAUD... OUR SO CALLED LEADERS SEARCH OUT NEW DEVELOPMENT PROGRAMME AND EN-CASH IT AND ALL BLACK MONEY GOES TO SWISS BANK ACCOUNT... SO IT IS NOT PROFITABLE TO SO CALLED "AM ADMI" ...IT IS STARTING (GOING ON AND ON) FROM PANDIT NEHARUS MINISTRY.. FRAUD FIGURE ARE SO SO BIG IT IS NOT COUNTABLE. OUR LEADERS ARE MAKING US FOOL

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    Replies
    1. yes, I agree to your views on India's economy through the FDI in Retail.The people must think on it and the govt., should give awareness to the people about the FDI. And its economical benefits too in the present scenario .The tragedy is that, the govt.,(some parties) appose it.My opinion is the FDI in retail is a good project system to our country and everyone consume all products .The purchasing power of the people of the country will certainly improve

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    2. I am 100% in favor of FDI in retail because of the benefits. Read today's eco times. Shopkeepers whose case CPM & BJP are fighting say they will not be affected by the giants entry. To counter the argument of political parties whose only agenda is to oppose everything that Govt does:

      I have seen Kirana shops flourishing just next to Big stores like Eazyday in my area. They have not been affected a wee bit.
      Kirana stores are shops in your neighborhood. These giants will open their outlets in markets which will not be so close.
      Even if we assume kirana sales will be affected, who is a bigger sufferer today - Is it farmers? Is it common man paying higher prices thru their nose? Or is it a few Kirana?
      In short CPM, BJP & their ilk deserve to be given KITA for misguiding the gullible public. They Dont want Govt to score so that they gain political advantage.

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    3. I am not ,supporting FDI in retail which is very beneficial in Indian Economy. India is fundamentally strong in resources, as we need not depend on other countries..

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  10. Copied from

    http://reformistindia.in/2011/11/30/ten-benefits-of-fdi-in-retail-farmers-consumers-kirana/

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  11. I am Dehaleesan, a practicing CA based in Chennai. I concur with most
    of the points mentioned by Arif Farooqui .

    One may recall that till Morgan Stanley MF set foot in India, none of
    the MF players (I mean SBI, UTI, LIC) were serious
    enough to share the NAV data (even on monthly basis) with investors.
    When Morgan Stanley started the practice,
    these people followed suit.

    Recall how arrogant the Bajaj delaers used to behave in 70’s and 80’s
    when you’d go to enquire about Chetak scooter availability status.
    Come Suzuki/Honda/Yamaha bikes partnering with local manufacturers,
    today Bajaj has to sweat it out.

    When you buy an article in Walmart/K Mart/Home Depot in US, you may
    return the goods within 90 days – no questions asked.
    Perhaps they levy 15% repacking charges (Still it is OK). And in
    India, every bill carries the citation ‘Goods once sold
    cannot be taken back or exchanged”.

    Kirana shops still make their margins better through doctored weighing
    scales. In contrast to Nilgiries or Big Bazaar, the
    quality of goods in Kirana shop is not great. And the price is just
    15% lower. Better pay higher price and get quality stuff.

    The advent of public transport/taxis/autorickshaws throw bullock
    cart/horse carriage drivers out of jobs! Opposition to FDI
    in retail is as stupid as this statement.

    Has computerization in Railways rendered people jobless? Instead they
    are able to settle the accounts faster and go home
    finishing the ‘shift’. In fact after computerization quality of work
    has only improved. No longer CA office does the TB tallying
    work, as in earlier years. We are more into analytics.

    People claiming to be champions of local economic freedom may say that
    Wal-mart renders people jobless. What statistical
    data do they have?

    I agree that it is the middlemen who would be rendered jobless.
    Perhaps Reliance retail and Big Bazaar may be affected.
    Not Kirana shops.

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  12. In my opinion FDI in retail sector will be beneficial to our country in following areas: Growth in economy: Due to coming of foreign companies’ new infrastructure will be build, thus real estate sector will grow consequently banking sector, as money need to be required to build infrastructure would be provided by banks.Job opportunities: Estimates shows that this will create about 80Lakh jobs. These career opportunities will be created mostly in retail, real estate. But it will create positive impact on others sectors as well. Benefits to farmers: In most cases, in the retailing business, the intermediaries have dominated the interface between the manufacturers or producers and the consumers. Hence the farmers and manufacturers lose their actual share of profit margin as the lion’s share is eaten up by the middle men. This issue can be resolved by FDI, as farmers might get contract farming where they will supply to a retailer based upon demand and will get good cash for that, they need not to search for buyers. Benefits to consumers: Consumer will get variety of products at low prices compared to market rates, and will have more choice to get international brands at one place.

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  13. Hi,
    Every patriotic Indian who can understand simple English must read this.
    Punch into google search-
    MODERN ECONOMICS, AN EMPIRICAL VULGAR PSEUDO SCIENCE- CAPT AJIT VADAKAYIL
    Adam Smith the supreme god of economists , was a THIEF who lifted French economist and banker, Richard Cantillon’s work.
    Adam Smith , the holy cow, was a CRIMINAL AND MURDERER who killed 120 lakhs ( 10.2 million ) Bengalis in 1769. See some gruesome pictures of the sunk holocaust.
    Adam Smith , the crypto agent, was an employed by British East India Company as the one man think tank-- who is now back to India for FDI in multibrand retail.
    History always repeats itself—this is why we learn history.
    DORKS and angrez ka aulads in Indian internet disguise —keep away.
    Capt ajit vadakayil
    ..

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  14. Politicians opposing FDI are interested for their own benefits they are be-fooling innocent people. In fact they are enemy of general public. Let the public know that FDI is helpful for all and for the country

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