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    Posted on 01 December 2011
    Sushil Bhan

    Dear BJP, nail FDI this time

    Sushil Bhan lays out a scenario 15 years from now, where FDI has helped transform India

    Illustration: Tim Tim Rose

    ON WHAT grounds can a government prevent a foreign business from coming to India as long as the business is legitimate? What legal authority does the government have to prevent the creation of large format retail, whether foreign or locally-owned? None. We are all aware that quite a few foreign businesses, registered as private limited companies in India, operate here and have done so for a number of years. If Wal-Mart wanted to be here, they could have been here with or without FDI being allowed.

    It is a myth that the current government or the next can either lay out a red carpet or down the shutters to prevent a business from doing what it wants to as long as they are not subversive or doing something grossly illegitimate. Let us just say that the likes of Wal-Mart will not water down milk or add urea or melamine to it. All of us know that KFC was forced to shut about two decades ago because it was alleged to use MSG or something like that. But KFC is back in India, ever bigger, because it looks like Indians find the concept appealing. Did the government have a role in bringing KFC in or turning it out of India? Is it the business of governments to promote Mughlai food or denounce Lebanese? Our conscience-keeper mobs should have taken to the streets in the 20 years that KFC was away, while we put to death thousands of unborn female children unabated. The choices of our causes has become senseless and so we can’t take protest seriously. More than any other time in India, we should do what is right for our people and explain why it is right and not feel threatened by 5,000 people taking to the streets or 50,000 people opposing it.

    There is no justification in the opposition’s argument that the ruling party is working at the behest of Wal-Mart, as their placard-bearing mobs seem to have inferred. A battle-hardened company like Wal-Mart, which is seven times the size of Reliance in annual sales revenue, would know a thing or two about neutralising political and or social resistance anyway. These companies have their way because they bring to the table the value that gazillions of people want. A company does not get to $420 billion simply by signing up governments as agents or by sucking up to local retail players.

    FDI in retail will not reduce inflation on day 2 as some statements from the government seem to suggest, though prices would come down on day 1. The power of scale and efficiency in a country as populous as India would produce unimaginable results. There could be no stopping anyone, local or foreign, who has the strategic mindset to create a defining frontend value for the customer. It is unfortunate that our local players have not gone the whole nine yards to create defining solutions for the customer. It could be because in India we like to be smart about what we give and what we get. FDI in retail would create urgency to close efficiency gaps in the current system of which there are many. FDI in retail would create the larger mindset – that does not exist in India currently – about winning customer preference.

    FDI would force the industry to bring frontend value that has not been seen in India so far. Commerce minister Anand Sharma says 30 per cent or so of agriculture produce does not reach the market. Even of the 70 per cent that reaches the market, the vegetable vendor loses another 30 per cent because he can’t preserve most of the perishables beyond a day. Theoretically, therefore, the chain is 50 per cent underefficient when it comes to capitalisation on what was produced. Organised retail would put speed into leveraging this opportunity. They would create situations to reduce this waste and then work on a 10 per cent margin. After all this, they would and still create a price break of perhaps 20 per cent for the customer.

    They would lure the producer to produce more efficiently as they try to keep the supply chains utilised. The end picture could be the omnipresence of large format retail where 15 years down, customers have got used to an entirely different level of quality and price. The producers are capitalising efficiently because they have an assured demand and no longer have to hedge for uncertainty. The logistics chain is happy to make investments in appropriate assets because these can be strategically optimised and operated in a risk-free manner given the assurance of demand.

    THE RETAIL side value the customer experiences is so intense it makes the tragic chaos of yesteryear seem like a nightmare. The organised retail system would employ many more workers because the efficiency will enable doubling of what reaches the retail end. The cost-efficiency and increased supply would ensure that more customers can be supported. Even without adding efficiency, there would be twice the amount of produce available for consumption. It can be said that the Indian market of tomorrow would mimic the markets we would find in the developed world today. This is so because the market forces would not permit the current inefficient system.

    We can’t think of India’s growth without moving from chaos into organisation. The paranoia that an evil outside force would rob us of our right to live an impoverished, inhuman and uncertain existence is not something that political leaders should fight to retain. How can quality working conditions for workers, where they have decent wages, pension and healthcare advantages, be bad? How can children going into education, instead of being forced into labour in the current system, be bad? How can people want leaders to inhibit them? How long will the electorate vote fear-mongers into power?

    The writing on the wall is not the number of MPs that are in Tihar Jail. The writing on the wall is that little village boys want access to the best the world has to offer; the writing on the wall is that the little village girls seek to live respectably by making their own choices, and finally the writing on the wall is that people want to cast away old restrictive ideas and cast away people who think there is no world beyond what their eyes can see.

    People do not aspire to line up outside ration shops and be given subsistence food because even the poorest of the poor seek to live free, with dignity, and without control. It is a clash of thought and a father does not always know best. FDI in retail symbolises a nation’s acceptance that its fragmented distribution system is wasteful, expensive and has reached end of its life from the standpoint of sustainability. FDI in retail might fire in a change that is overdue. It is time.

    Sushil Bhan is a strategy and technical operations veteran based in New Delhi.
    [email protected]

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    Posted on 01 December 2011



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