Will FDI in Retail displace Kirana Stores?

G.S. Vijay Kumar By G.S. Vijay Kumar, 23rd Oct 2012 | Follow this author | RSS Feed
Posted in Wikinut>Business>Investment

A fierce controversy on Foreign Direct Investment (FDI) in multi-brand retail seems to be gaining ground ever since the policy was announced. The question on everyone’s mind is “Will FDI in retail displace the kirana stores”?

The answer is a clear " NO".

Will FDI in Retail displace Corner Stores?

A fierce controversy on Foreign Direct Investment (FDI) in multi-brand retail seems to be gaining ground ever since the policy was announced. The question on everyone’s mind is “Will FDI in retail displace the kirana stores”?
To begin with, out of an estimated 8 million kirana stores in the country, nearly 75% or 6 million kirana stores are spread over rural India where the global retail giants cannot establish their stores as they have been bound by the government to set up shops or show-rooms only in cities having a population of more than one million. Besides, in the last few years when large format domestic chains were allowed to invest in retail, we have seen that both large retail stores as well as neighbourhood kirana stores have co-existed. The scenario is not likely to be any different when foreign retail stores step in.
It is argued that global retail giants like Walmart, who have deep pockets, would set up operations in India at prime locations and sell their merchandise at very low prices and thereby undercut the local kirana stores selling similar products. It is further argued that they will initially buy in large quantities and sell at low prices and undercut small retailers. They will thus drive away the neighbourhood kirana stores or the small retailers and create a monopolistic situation and then start buying low and sell at higher prices. This argument appears to be bizarre, particularly in a large market like India. In the unlikely event of such a happening, new entrepreneurs would readily enter the market to compete. In a homogeneous market, new entrants will automatically enter or exit the market depending on the opportunities it presents at any given time.
The opposition’s criticism of job losses is also unfounded. In a large market like ours, there will be opportunities for all kinds of retailers to co-exist. The local kirana stores could offer better personalized services, free home delivery, offer credit facilities and such other services in order to remain competitive and retain customers. Besides, the entry of foreign large format stores will make the local kirana stores more efficient over a period of time. We need to create employment opportunities for our people but this need not be at the cost of efficiency.
It is quite natural that efficient retailers would survive and inefficient ones would perish. This holds true in all walks of life. In the immediate future, large retail chains are likely to hire a lot of people and we are going to witness a sudden spurt in jobs. However, over the longer term, redistribution of jobs may take place and we may find some jobs drying up and some new ones emerge.
FDI or no FDI, a certain amount of churning does take place in all sectors over time due to various reasons. Haven’t we seen companies like Remington Rand, a multinational company and market leader in typewriters at one time, close shop in India as they didn’t adapt themselves to the changing market conditions? Several big corporations, both foreign as well as domestic, have wound up operations in India due to their own baggage and not because of anything else.

In India, many of us have not been exposed to the benefits of modern trade and have been patronizing the local kirana stores for many years. Large format domestic retail stores have entered the scene in the last 7-8 years and they have contributed in no small measure to the overall development of the retail trade. Needless to mention, shopping experience has been made more pleasant coupled with better pricing vis-à-vis the corner stores. The entry of global retail stores is likely to give a further fillip to this development and the whole economy will gain in the long run.
In the arguments over preserving the local corner stores, one tends to forget the interests of the common man. One fails to understand as to why should the consumer be forced to buy from the local vegetable vendors by paying a higher price? We cannot afford to gloss over the interests of the consumer, which includes the kirana shop-owner as well as his workmen. The consumer is supreme in a market economy and no fallacious arguments about protecting the corner stores can stand the test of reason. Crocodile tears are shed for the poor corner store proprietors and neighborhood kirana shops. Lower prices benefit everybody including the small traders.
FDI brings in not only scarce capital for infrastructure, but also modern marketing techniques and inventory management skills. The farmer gets large organized outlets for his products and with our systems of support prices, his interests will remain protected. The middlemen may disappear with the farm-gate to factory-gate to selling-gate links. Guesstimates suggest that the size of our current retail market is around US$ 500 billion which may expand to US$ 800 billion by 2013 and further to US$ 1.3 trillion by the year 2018. Without the organized skills and modern methods, indigenous retail marketing will not be able to provide the people of India, the consumers and the farmers a fair deal.
It appears that we are replicating the same old story of 1991 when the country had written the obituary of Indian brands and businessmen which only have got better and bigger now than they would have otherwise achieved without competition.

G S Vijay Kumar is a senior corporate executive and a columnist.


Corner Stores, Fdi, Foreign Direct Investment, Investment, Kirana Stores, Retail, Retail Employees, Retail Industry, Retail Marketing, Retail Sales, Retail Store, Retailer

Meet the author

author avatar G.S. Vijay Kumar
I am a management graduate and have worked as a senior executive for 25 years in the corporate sector.I am a columnist and write on management, Economics and socio-economic topics.

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author avatar Lady Aiyanna
23rd Oct 2012 (#)

FDI is the lifeblood of India which has a lot of EXIM policies in place, hence the devaluation during the Manmohan Singh Regime as the Finance Minister in the 90's. They devalued the currency twice back then to increase International trade and Globalisation. Today's market in India consists of a lot of foreign items which also have their manufacturing units in India. It helps even out the Balance of Payments between the two countries in tie up. It is called a compromise at a governmental level and they always help in Credit Creation and Credit Control that aids in the Interest rates prevailing in the economy and the number of loans and GDP floating around. India has a low per Capita income too because of excessive traditionalism and refusal to check and modrenise their trends. But that said, they have very good policies that cover the track and trail in investment and money entering and exiting the country with high volume of paperwork but high clarity. I never understood the value of my training in India till I left the country to live abroad and found the foreign countries very lax in their clarity wherein the left hand never knew what the right hand did and worse, many of them within their own department.
The Locals should use the EXIM policies and form Co-operatives like Amul and market their products abroad and check inflation and reduce the number of people living below poverty line rather than criticizing, condemning and wasting what they already have as many don't have them in this day and age.

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