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Q&A: Arvind Singhal, Technopak Advisors

'E-commerce, not FDI, will be the major cause of disruption for traditional retail'

Nivedita Mookerji  |  New Delhi 

Arvind Singhal

The government has missed the chance to put reforms back on track by keeping the decision to allow foreign direct investment (FDI) in multi-brand retail in abeyance, Arvind Singhal tells Nivedita Mookerji. Edited excerpts from an interview:

What do you make of the political situation of the past 13 days — from the Cabinet decision to allow 51 per cent FDI in multi-brand retail and 100 per cent in single brand to the time the government put the move on hold?
I have never come across any reaction of this degree to a reform process. India missed out on several opportunities in the last several years, and permitting foreign investment in multi-brand retail was a chance to restore the country’s image. Even China, which is known for state control, has had a “reformist” government for the last 30 years. FDI is not just about foreign investment and foreign money, but also about foreign know-how, which is so critical for a country like ours in the retail business, which is largely unorganised in nature.

Don’t you think the protests were expected?
Ideological differences over issues are fine. But it’s high time understood that the economy has to open up. The political opposition that we have witnessed after the FDI decision is extremely odd. It is clearly a political game to embarrass the government.

What about the timing of the decision? Isn’t it strange that the government took such a major decision while Parliament was in session?

Yes, that’s right. The government would have known that there would be resistance to the Cabinet decision. It should have ideally taken the decision around September-October or after this session of Parliament. Had Parliament not been in session, we would probably have seen some street protests. Taking such a big decision when Parliament was in session was as big a mistake as taking Anna Hazare to jail.

What signals have the recent developments given to the international investor community?
The international media has been full of bad news on India of late. First, it was the slowdown in the GDP growth rate. And soon after it was the massive protest against retail FDI. It certainly does not show India in a positive light. Unless there’s a stable policy environment and sound infrastructure in the country, international investors cannot be attracted. The government should make all efforts to woo investors, to negate what politicians like Uma Bharati have said about burning down foreign stores.

What do you think the top managements of Walmart, Carrefour or Tesco are thinking at this point?
I can’t talk on their behalf. But I think the foreign retailers would have anticipated some of this opposition. That said, most of these foreign retailers, like Walmart, are long-term players.

How important is retail FDI in the larger scheme of things in India?
India needs any kind of investment. The rupee is weak, and we have no leeway, nor any internal stimuli. To top it all, the manufacturing sector has shown poor results. Once FDI is allowed in retail, thousands and millions of jobs will be created. You are either open to investment or not. You can’t be selective about it. It’s either a yes or a no.

If you were to assess the advantages and the disadvantages of FDI in retail, what would they be?
I think it will help everyone in India. I can’t think of anyone to whom it could cause a significant loss. There’s so much wastage in the system now; FDI in retail is expected to help prevent it to a large extent. The money can be re-invested in logistics, cold chain, distribution and employment.

Don’t you think the impact on mom-and-pop stores or the neighbourhood kirana outlets will wear down with time?
Estimates suggest that the number of independent stores would grow 40 per cent in the next 15 years or so. But, there’s a caveat. The only major disruption in this growth would be e-commerce and not FDI in retail. E-commerce has the potential to be disruptive for traditional retail. It is a platform that could be owned by anybody, with no need for any physical infrastructure. If we were to have this discussion three years from now, we won’t be talking about big versus small retail, because it would be online all over. For example, look at the UK market. Around 4,000 megastores were shut down in the past seven months due to competition from e-commerce in the UK.

Should multi-brand stores come up in big cities, outskirts of cities, or smaller towns?
The real opportunity is in the smaller towns.

Should FDI be opened up in phases, rather than permitting 51 per cent in one go?
It’s important not to think like a politician, but from the point of view of an investor. Introducing FDI in phases is a faulty line of thinking. Why would one like to put in money if you don’t have control over the business? This debate has been going on for 10 years….

What is your view on the riders attached to the retail FDI rules set out in the Cabinet decision of November 24?
Take the condition on 30 per cent sourcing from small and medium businesses, for instance. It may be possible in food and grocery. But what about categories like clothing, home products, furniture and pharmaceutical? How can you source from small businesses there?

How much will the foreign retail players source from India for their multi-brand stores?
The mass market will be unviable if chains had to pay duty to source products from other countries. Therefore, a Walmart will sell goods available in India to a large extent. The current import basket will remain more or less the same. These chains may, however, buy more from India to export.

First Published: Fri, December 09 2011. 00:05 IST