In your interest.
Online Personal Finance Magazine
No beating about the bush.
With the government campaigning for FDI in retail, the question is, is it really going to help? If yes, then whom?
Today, the ministry of commerce and industry took its campaign to promote FDI (Foreign Direct Investment) in retail to the literate population of India, with full page advertisements in newspapers.
The advertisement claims that such direct investment will bring huge benefits not only to the farmers but to the society at large and that it will generate over 10 million new jobs and so on. Naturally, it does not give any time frame to achieve this end.
The ministry calls this as “another revolutionary leap” for the Indian economy. Reading such an ad makes it nice, but whether it will truly benefit the people in the long run remains to be seen. At least in US, it did not do so, according to the media.
The first and foremost fear is that farmers will be exploited by the predatory pricing policy of the large retailers, a job that is probably and already being done by a host of middlemen. So, instead of many such middlemen, there will one source where the farmer will face a single-window ‘clearance’, and that of the FDI retailer!
Having said that, will this process reduce the ultimate cost that the actual consumer has to pay for the farm products? Yes, in more ways than one, as the present Indian retails and supermarkets reveal.
Let's take a look at any Indian major city, like Bangalore, for instance. There are several big business houses in retail, such as Reliance, Tatas, Goenkas, and supermarkets like Spar, Big Bazaar, etc to name a few. In this category, we could include government sponsored HOPCOMs too.
There is intense competition amongst all these organizations. The pricing is sharp and the range of products covered is going up by the day.
And who are the buyers? They are the growing middle-class rich consumer society, where the chances are that both husband and wife earn a living and have a reasonably comfortable lifestyle. In all probability, they shop once in a week to make the purchases and do it methodically; no spur of the moment purchase, but needs are listed and shopping is done at leisure on chosen days.
The only thing that is left to buy is the odd item that may fall short which the family member at home or the cook may resort to purchase from the nearest Kirana shop or buy from the cart vendor, whose prices are at least 50% higher than the retailers mentioned above. This is based on the actual experience of the writer’s family.
FDI in retail is not a simple exercise to be covered in a single article but an in-depth study will take quite sometime and its impact cannot be visualized easily. If Reliance and Big Bazaar have come to stay, so will the FDI in retail, in due course.
FDI in retail will be subject to a lot of discussions and scrutiny. To generalize and compare how other countries have fared and still let kirana (small shops in road corners) survive or bring about better returns to farmer is a futile exercise. The conditions in India are different. We need to clearly spell out some basic pre-conditions that have to be complied within a specified time-frame, failing which, the licensee will have to pack up and go home.
a) At least 30% of the indigenous farm produce will have to be retailed
b) Each FDI-R licensee be given the choice of seven to 10 locations where it can commence its actual retail operations
c) These operating centres will have to be supported by actual infrastructural development of warehouses, cold storage and transportation logistics in identified sources of supply at the produce points
d) The next set of new cities will be after successful performance, a minimum of 18-24 months later, with the same conditions relating to infrastructure development or by expansion of existing ones
e) The activities of the FDI-R licensee will be subject to a close check and follow-up by a regulator who will maintain a watchdog committee for keeping a track of purchase pricing to retail selling; of the actual commitments in terms of fulfilling employment growth and how these actually are benefiting the country in terms of taxes earned
f) These FDI-R licensees should not become the single largest selling point for marketing products of other countries when identical or similar products of indigenous makes are readily available.
These measures would be the first of many that one can think of as a start.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)
Following SBI's move to cut interest rates on deposits to 1%, both ICICI Bank and HDFC Bank also reduced their interest rates on fixed deposits by 0.5%
Mumbai/New Delhi: Country's two largest private sector lenders ICICI Bank and HDFC Bank have revised interest rates on fixed deposits by up to 0.50% each, a week after State Bank of India (SBI), the largest lender in the country, reduced term deposits rates, reports PTI.
ICICI Bank has reduced interest rates of retail fixed deposits by 0.5% for tenures ranging from 91 days to less than 5 years, the bank said in a statement. "ICICI Bank has also rationalised the interest rate on retail fixed deposits of tenure up to 45 days," it said.
Under the revised rates effective from 11th September, the bank, which earlier had a peak offering of 9.25%, will now offer 8.75% for a deposit under Rs15 lakh in the 390-day to less-than-two-year period, according to the information available on its website.
Meanwhile, HDFC Bank has revised interest rate on fixed deposits by up to 0.50% on select maturities.
For deposits of maturity between six months 17 days and nine months 15 days, the upward revision is 0.5% to 7.75%. Term deposits for nine months 16 days would earn 0.25% lower interest at 7.75%.
The rate on nine months 17 days to 1 year fixed deposit would go up by 0.5% to 7.75%, as per the data posted on the bank's website.
Last week, state-run lender SBI slashed interest rate on fixed deposits up to 1% across various maturities.
SBI Chairman Pratip Chaudhuri had said its deposit rate cut of up to 1% was aimed at protecting the margins as deposits have grown much faster than advances in recent months.
With MCX-SX pricing its charges most competitively for brokers, what would be the reaction of other exchanges? NSE, the most expensive, but the richest exchange is yet to react. If it does, a bloody price war would break out
With MCX Stock Exchange’s (MCX-SX) announcement to begin its operations around Diwali, its ‘attractive’ transaction fee structure for members trading in equity cash, futures and options segments, is out. The comparative analysis of charges of the three exchanges show that the overall costs for brokers at MCX-SX are nearly 50% lower than that of BSE and NSE.
Comparative transaction charges in Equity Cash Segment
In the cash segment, while NSE’s price is on the higher side, BSE and MCX-SX seem to be on par. BSE’s charges are uniform across value segments, and even more for active orders. Remember, BSE offers add-on incentives for trading higher volumes. Data collected by Moneylife in August 2012 indicated an incentivised trading volume of Rs3,420 crore by broker members of BSE.
Comparative transaction charges in Equity Futures Segment
In the equity futures segment, MCX-SX’s charges are sharply lower than that of NSE.
Comparative transaction charges in Equity Options Segment
Interestingly, it is in the options segment that MCX-SX has decided not to compete hard; it is the most expensive. It may be recalled that BSE has been trying to promote its volumes in the options segment. BSE is by far the cheapest but applies that rate to active orders only. BSE incentivises brokers for trading volume, open interest, quoting obligations and overall transactions. According to Joseph Massey, MD and CEO of MCX-SX, the exchange has kept its transactions charges lower in order to create a deeper market penetration. According to Mr Massey, the lower transaction fee allows members to enjoy the additional, notional capital released, that would otherwise be blocked.
Moneylife had earlier written about how BSE has sharply reduced its charges in order to attract volumes (http://www.moneylife.in/article/stock-exchanges-bses-gambit/27913.html ), and pointed out that BSE’s strategy of introducing lower costs as having a dual advantage. One, that BSE would take away business from the NSE in case the latter did not reduce charges. On the other hand, if NSE did, its huge profitability would suffer. In addition to that, BSE’s significantly lower charge structure was designed to raise entry the barrier for MCX-SX. But MCX-SX has now countered this with the most competitive charges in the market, except in the options segment where it has chosen to be expensive.
While BSE provides its brokers with incentives based on daily average trading volumes, MCX-SX, as of now, does not want to follow this strategy, said an MCX-SX spokesperson. MCX-SX has, however, decided to widen its membership reach. It has extended its membership offer to different categories of people, including rural entrepreneurs, which it claims, is expected to work towards financial inclusion.
A price war among the exchanges is brewing. It will be a matter of time before NSE reacts to MCX-SX’s pricing. It will impact the bottomline of all three players directly, mainly MCX-SX which is losing money from the currency options segment—all at a time when the business volumes are down and equities are widely seen to be unattractive.