Column : Attitude, not FDI in retail, will bring reforms

Nov 22 2012, 01:14 IST
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SummaryThe absurd proposal of creating a regulator for multi-brand retail ignores the existence of Competition Commission of India.

No one seems to object to FDI in single-brand retail (Ikea, Louis Vuitton, etc). But many object to FDI in multi-brand retail. The obtuse commerce minister has confused everyone by linking FDI in multi-brand retail to better agricultural development. Its principal achievement is to enable large retail chains to negotiate better prices for manufactured goods. The traditional small retailers who will be hurt will be those located near these stores. Now the commerce minister proposes another regulator to ensure fair competition between the old and new retailers. He has forgotten the existence of the Competition Commission of India (CCI).

Packaged manufactured consumer products are branded, but not fresh products like fruits and vegetables. For consumers to get lower prices for fresh fruits and vegetables, a total transformation of agricultural and rural infrastructure is required. No private retail chain, and that too a foreign one, is going to do this. Multi-brand retail is about selling branded packaged products, almost invariably manufactured, to strict standards so that every brand offers the same product.

Other fresh products like breads, cakes, pastries, etc, are also sold in such stores. They are usually unbranded, but sometimes have brand names (Britannia, Modern, etc). Fruits and vegetables might be sorted for quality and pre-packed but are not branded. They are placed at the far end of the store so that the customer has to pass the shelves of packaged products, and might be tempted on impulse to buy them.

Manufacturers of packaged goods are happy to have large retail chains as customers because they buy large quantities. The chains negotiate especially low prices, credit and on-time delivery so that the chain has to lock up less money in inventory.

The old-style retail stores are staffed by the owner family. They have no bargaining power and get no special prices. Their hold on customers is because of convenient location near residences, free delivery, credit, etc. In competition, most old-style retailers will lose many customers for manufactured packaged goods to the new neighbouring retail chains which can cut prices. The new retail chain stores are convenient. They will take much business away from neighbouring small family-run retail stores. Old loyal customers and others out to make small purchases might remain but business will decline. In our huge country, with over five million shops and establishments, most shops will not die. Further, the new retail chains will be confined to a few states and

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