Jan 15, 2012

US expresses displeasure over delay in FDI in Indian retail while US/EU love for Big retail is over.

US is visibly upset. According to a news report, US Trade Representative Ronald Kirk has postponed his visit to India presumably to 'convey US displeasure on India going slow in giving market access to the American companies, in areas like retail, banking and insurance'. Another US Senator and co-chair of the Senate India Caucus Mark K Warner has also expressed his displeasure. "I am seriously concerned about delay in implementation of FDI in multi-brand retail," he told the CII Partnership Summit 2012 [US Senator upset over delay in FDI in Indian retail http://www.moneycontrol.com/news/current-affairs/us-senator-upset-over-delayfdiindian-retail_650019.html]

Notice the tone of displeasure that Mar R Warner conveys. He seems to be talking like a school Headmaster complaining about some students who fail to live up to the prescribed discipline.  

But you shouldn't be surprised. That is what the US treats Indian government as.

A few days later, P K Chaudhary, Secretary, Department of Industrial Policy and Promotion (DIPP) reportedly told a group of farmer representatives that he was not seeking a plebiscite on the issue whether India should allow FDI in retail but trying to find out safeguards that needed to thrown in. In other words, the decision to allow FDI in retail has already been taken. This is quite evident from the press release that some of the farmers' organisation issued after meeting the DIPP Secretary. While they opposed the entry of Retail FDI, the DIPP Secretary gave an impression as if there was general support for the opening of the retail market. Well, didn't I say earlier: how can the DIPP (on behalf of Govt of India) dare to annoy the Headmaster?

This comes in the wake of another interesting report that Prime Minister Manmohan Singh and his colleague, Finance Minister Pranab Mukherjee, would not like to read. Nor would the mainline media, which is more or less sold to the idea since a lot of business interests are involved. Coming to the media, it is interesting that the same arguments that are being floated for opening up for Retail FDI are debunked when it comes to bringing in 100 per cent FDI in print media. Let me give you just one example. FDI in retail is expected to create jobs within the country. But when it comes to FDI in print media, the Information and Broadcasting Minister Ambika Soni told Parliament on Dec 20, 2011: "With the liberalisation process, 26% FDI has been allowed in foreign news and that category of newspapers. But it has been our considered policy and there is no unanimity in the country on increasing the FD quotient. It is also an endeavour on the part of the government to encourage the newspaper industry which is indigenous, which is Indian, so that our people do not lose their source of employment."

Well, you must have observed the double-talk. FDI in retail is being allowed for the same reason that you do not want FDI in print media to be allowed. The DIPP analysis therefore is nothing but bunkum, and should be discarded. It is an utterly flawed and faulty analysis, and needs to be questioned.

Returning back to the new emerging global trend in supermarket expansion, the Financial Times in an editorial End of space race [Jan 13, 2012] -- a paper that PM Manmohan Singh treats as Bible -- says: "Twenty years ago, hypermarkets drew shoppers like monuments draw tourists. People travelled for miles to browse these vast cathedrals of consumerism, which sold everything from fresh fish to televisions at everyday low prices. In 20 years’ time, the decision by Britain’s biggest food retailer, Tesco, to halt hypermarket expansion and shift its non-food sales increasingly online may come to be seen as a turning point for the industry. Consumers no longer want everything under one vaulting roof. They want to shop locally, take less time about it and avoid the temptation of buying what they do not need".

Considering that supermarkets are now stopping expansion, and going for 'small is beautiful' approach, I don't understand the logic why should India be opening huge malls for multi-brand retail? Wal-Mart has also shifted to smaller stores, called Wal-Mart Express. Why should we be made to go through the grind, and learn our lessons 20 years later? By the time, the damage would have been done. 

But will our PM like to read the writing on the wall? Your guess is as good as mine. He awaits instructions from his Headmaster !

Here is the FT editorial: 

End of space race

Twenty years ago, hypermarkets drew shoppers like monuments draw tourists. People travelled for miles to browse these vast cathedrals of consumerism, which sold everything from fresh fish to televisions at everyday low prices. 

In 20 years’ time, the decision by Britain’s biggest food retailer, Tesco, to halt hypermarket expansion and shift its non-food sales increasingly online may come to be seen as a turning point for the industry. Consumers no longer want everything under one vaulting roof. They want to shop locally, take less time about it and avoid the temptation of buying what they do not need.

This trend is apparent well beyond the UK. In France, the birthplace of the European hypermarket, consumers are shunning the big boxes out of town in favour of discounters and convenience stores. Even in the US, the mighty Walmart is beginning to open smaller stores to tap the convenience boom. People are busier, the population is ageing and they have less to spend on big weekly shops as well as on the petrol to get them to out of town outlets. 

Tesco was bold in being the first of Britain’s big four to openly declare the end of a hyper-expansion drive that will see 26m new square feet added in the next few years. Though it has been apparent for some time that the hypermarket model of combining high margin non-food items with the weekly grocery shop was becoming less attractive, each retailer was afraid to change tack for fear of calling the trend wrong and losing market share. Tesco’s decision should help to mitigate what had become a damaging and costly race for space in a market where volumes have fallen for the first time in 30 years.

It is less obvious that Tesco’s move signals a revolution in online retailing, however. Consumers are still reluctant to buy their food on the web, as the woes of Ocado, Britain’s only true online food retailer, show. Overall, online food sales account for just 4 per cent of the industry after 15 years. 

The real revolution will be to accelerate the shift in bringing sophisticated food retailing back to the high street. This is good news for Britain’s many dying town centres. A more vibrant high street is good for community building and for the environment. Shoppers will be less inclined to take their cars to out of town centres if what they need is within easy reach. But this poses a challenge for local councils. Retailers complain that they struggle to find good sites. Property developers are reluctant to take on town-centre projects because of rules that require additional investments, such as new roads or libraries, to secure planning permission. Such constraints must be lifted. Otherwise, the high street risks becoming a monument to a missed opportunity.

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