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Kirana shops cheer FDI in wholesale, not retail

Is the threat posed by foreign multibrand retailers to local kirana stores for real? What's in storeVivek Sinha reports.

business Updated: Dec 08, 2011 02:41 IST
Vivek Sinha/HT Correspondent
Vivek Sinha/HT Correspondent
Hindustan Times
FDI,retail,kirana stores

Is the threat posed by foreign multibrand retailers to local kirana stores for real?

The government has put the decision to allow foreign direct investment (FDI) in multi-brand retail in cold storage. But Hindustan Times conducted a dipstick survey of small storeowners in three cities — Delhi, Zirakhpur near Chandigarh and Bangalore — where three multinational retailers have cash-and-carry wholesale stores.

Two picture emerged. One, wholesale prices at cash-and-carry stores are cheaper than local mandis. Second, kirana store owners get a 15% price advantage by shopping from these stores, but they are wary of multinationals entering retail.

“The prices at the Carrefour store are cheaper by 10 to 15% than those in mandi,” Mata Prasad who owns a kirana store at Seelampur in Delhi told HT.
Kirana owners at Zirakpur and Bangalore agreed. Ajit Pal Singh of Zirakpur said: “I can get everything under one roof. This saves me the hassle of hopping stores at the local mandi.”

Kirana owners’ fear about large retailers is not without basis. Wholesale kirana traders of the mandis in the same three cities, who now compete with cash-and-carry stores, have seen a substantial dip in business.

“We are unable to match the kind of discounts and deals offered by Carrefour,” Pawan Kumar Goyal, a wholesale kiraana owner at Seelampur in Delhi. “Our business is down by 60% since Carrefour opened last year.”

The same is the case with wholesalers at Bangalore and Zirakpur. In fact, small kirana owners of the likes of Prasad, Singh and Nagaraj consider the wholesale store owners of mandi a part of the chain of middlemen.

Their question: if the erstwhile big sharks — the wholesale merchants of local mandis — have taken such a large hit, what would happen to small businessmen?

(With inputs from Jyotsna Jalali at Chandigrah and Naveen Ammembala at Bangalore)

End of road for economic reforms?

The corporate leaders expressed their disappointment as the FDI in multi-brand retail was put on hold. The business leaders felt the reforms in retail were one of the boldest moves and India should have taken decisions based on facts and not under emotional duress.

The business honchos felt that the move is likely to cement a view that the world’s biggest democracy is an emerging market slowcoach, losing economic clout to other BRIC nations such as China and Brazil.

“It is a regretful decision. This only signals that we reach conclusions based on emotions rather than take facts into account and take a rational decision. The benefits were not fully understood,” said Thomas Varghese, chairman, CII’s National Committee on Retail.

Thomas Varghese, CEO, Future Group, which owns Pantaloon and Big Bazaar retail stores said the decision has “certainly delayed” creation of new economic activity.
“We are convinced that good sense will prevail at some point, and a consensus will emerge in some form, maybe not in the initially proposed form,” Biyani said.

However, the honchos hoped that the retail remains a one off case and reforms process to other sectors such as aviation and pensions remains intact.

“In the overall interest of the country and the economy….all stakeholders would converge on the issue of reforms with a constructive mindset,” said CII president, B Muthuraman.

FDI in airlines not likely now

A proposal to allow foreign airlines to invest in domestic carriers may be a casualty in the wake of the furore against FDI in retail.
Top government sources said Trinamool Congress chief Mamta Banerjee had expressed clear opposition to any move to allow foreign airlines to invest in domestic carriers.

Trinamool officials in Delhi did not comment.

A proposal from the department of industrial policy and promotion (DIPP) favouring a 26% cap on foreign airlines’ holding in domestic carriers has reportedly found support in various ministries.

At present, India allows foreign investment of up to 49% in Indian carriers, but foreign airlines are banned from investing in them.
FDI could prove a lifeline for the ailing aviation sector.

Private airlines in India have lost an estimated Rs 3,500 crore in the six months ended September, more than the Rs 2,900 crore they lost in all of 2010-11, according to lobby group Federation of Indian Airlines (FIA).

First Published: Dec 07, 2011 20:22 IST