FDI in multi-brand retail to benefit domestic players: Experts

“Allowing FDI in multi-brand retail would serve India very well by bringing in the culture of discount stores,” VG Narayanan, a ‘Thomas Casserly professor’ of business administration at the Harvard Business School told media persons

Chicago: Although India has decided to put foreign direct investment (FDI) in multi-brand retail on hold, various experts feel that allowing foreign investments in this area will benefit domestic sectors more than the foreign players like Wal-Mart, reports PTI.

“In my opinion, allowing FDI in multi-brand retail would serve India very well by bringing in the culture of discount stores,” VG Narayanan, a ‘Thomas Casserly professor’ of business administration at the Harvard Business School, told PTI.

Mr Narayan, who spent the last month in India, said with large international players entering the country’s retail sector, logistics and supply chain management practices will improve considerably, which in turn, will benefit farmers and manufacturers and reduce waste.

“Multi-brand retailers such as Wal-Mart have played a very important role in keeping prices down, while delivering tremendous value to the customers. So, Indian consumers will benefit from lower prices,” he said.

This will also create a large number of jobs, not just in the retail sector but also in logistics, construction and manufacturing as well, he said.

The Union Cabinet cleared the proposal to allow 100% FDI in single-brand retail and 51% FDI in multi-brand retail in November last year.

Although, the proposal for single-brand was cleared by Parliament in the Winter Session, FDI in multi-brand retail was vehemently opposed by all opposition parties, including ruling United Progressive Alliance (UPA) ally Trinamool Congress, after which the decision was put on hold by the government.

The world’s largest retailer Wal-Mart, which is one of the most-awaited entrants in the event of FDI being allowed in multi-brand retail sector, has been neutral on the issue.

“We respect the Indian government’s decision and look forward to a consensus being reached on FDI in multi-brand retail,” Megan Murphy, international corporate affairs manager, said in a statement.

However, Lakshman Krishnamurthi, a ‘Montgomery Ward’ distinguished professor of marketing at Northwestern University’s Kellogg School of Management, said success of allowing foreign retail in India depends “on how you measure success”.

“Wal-Mart entered China in 1996 and it took more than a decade for the China operations to become successful. India in 2012 is a richer country than China was in 1996, on a per capita GDP basis, but the income distribution is skewed with a significant bottom tail. Wal-Mart is not a company that makes entry decisions without significant analysis.

“They see India as a huge market, and, if and when they enter, will play for the long-term, not the short-term,” he said.

Commenting on the reasons for holding the decision to allow FDI in multi-brand retail, he said: “At one level the problem is political.

There is somewhere between 10-13 million retail outlets in India dominated by the kirana stores. The worry is that the entry of large multinational corporations like Wal-Mart will affect these establishments and throw large numbers of people out of work”.
“The flip side of the argument is that entry of Wal-Mart will lead to increase in purchasing of goods. So farmers and goods manufacturers will benefit, and improvements will come in supply chain management and logistics infrastructure which will demand people with those kinds of skills, and so on,” Mr Krishnamurthi said.

Mr Krishnamurthi, who is writing a book on business practices in India and China, including the retail sector, with Sugandha Khandelwal of the Nielsen Company and Yuxin Chen, marketing management professor at Kellogg School of Management, claimed the vast majority of kiranas will be unaffected by the entry of Wal-Mart.

Only the ones in large metros could be affected, and even that is hard to see, he said.

“The positive is that entry of Wal-Mart will lead to increase in foreign investment, which should be good for the economy as a whole,” the professor said.

“Also, the entry of Wal-Mart will spur domestic retail players to improve their operations to compete with Wal-Mart.

The FMCG (fast-moving consumer goods) sector should benefit as it is more efficient to sell to modern retail partners than the unorganised sector,” he said.

“Indian farmers should, theoretically, benefit with better prices if a number of the intermediaries are removed and consumers should benefit as many of the channel mark-ups disappear,” Mr Krishnamurthi said.

“Nothing in India moves quickly, but the Indian retailing sector except for certain pockets is not very efficient and has to improve,” Mr Krishnamurthi said.

An interesting by-product of the entry of large foreign retailers could be the wooing of the kiranas by major brands in India because of the expected loss of power by these brands in dealing with companies like Wal-Mart.

“In addition, Wal-Mart will carry a line of their own branded products,” Mr Krishnamurthi said.

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COMMENTS

Harish

5 years ago

No way, I can no believe this

India signs multilateral agreement to check tax evasion

The agreement, convention on mutual administrative assistance in tax matters, is a multilateral agreement of 31 other nations which “promotes international co-operation while respecting the rights of taxpayers”

New Delhi: Taking another step towards combating black money, India has signed a multi-lateral agreement with economic powers like France and Germany to check both tax evasion and avoidance, reports PTI.

The agreement, convention on mutual administrative assistance in tax matters, is a multilateral agreement of 31 other nations which “promotes international co-operation while respecting the rights of taxpayers.”

The agreement has been signed under the aegis of the Organisation for Economic Cooperation and Development (OECD), a top global financial body, at its headquarters in Paris recently.

A finance ministry official said the agreement was signed by CBDT official and joint secretary in foreign tax division of finance ministry Sanjay K Mishra along with OECD deputy secretary general Rintaro Tamakio.

“The convention provides for administrative co-operation between the parties in the assessment and collection of taxes with a view to combating tax avoidance and evasion,” an OECD statement said in this regard.

By joining the agreement, India and other 31 signatories, according to OECD, “send a strong signal that countries are acting together to ensure that individuals and multinational enterprises pay the right amount of tax, at the right time and in the right place.”

“India has moved very quickly since its commitment to the convention at the November G20 ceremony in Cannes and I expect it will be the first non-OECD G20 country for which the updated convention is in force”, Jeffrey Owens, director of the OECD Centre for Tax Policy and Administration said in a statement today.

“With taxpayers increasingly operating on a global basis, tax authorities are moving from bilateral to multilateral cooperation and from exchange of information on request to other forms of co-operation. The convention is an effective and practical tool to help tax authorities in their everyday work,” the statement said.

The other members under the convention are Argentina, Australia, Belgium, Brazil, Canada, Denmark, Finland, France, Georgia, Germany, Iceland, Indonesia, Ireland, Italy, Japan, Korea, Mexico, Moldova, Netherlands, Norway, Poland, Portugal, Russia, Slovenia, South Africa, Spain, Sweden, Turkey, Ukraine, United Kingdom, and the United States.

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