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FDI in retail can push Indian exports

The global procurement and expansion of super market retail chains are driven by the need to locate the best merchandise at cheapest prices anywhere across the world.

india Updated: Jan 22, 2006 23:32 IST

Can India become a global sourcing hub if FDI is allowed in retail? International experience shows that substantial investments in modernising our primitive markets and greater access to global supply chains can change things dramatically.

In China, global retailers buy goods worth about $60 billion for exports every year. China is the largest source for 5,300 stores of Wal-Mart, world's biggest retail chain. Last year, Kingfisher Plc, another global retailer, sourced over 80 per cent of its total global procurement of $550 million from China alone.

Many international players like Wal-Mart, Gap, Ikea and Tesco are already sourcing from India despite FDI restrictions. In fact, a PwC-CII report The Rising Elephant, points out that their buying volumes are in the range of $0.2 billion to $0.4 billion per year, and likely to increase to $2 billion to $3 billion within the next 3-5 years. Wal-Mart, through its buying office in Bangalore, sourced goods worth $1 billion from India last year and plans to increase it to $1.5 billion this year.

Clearly, the scope of exports through the global retailers is enormous, a point substantiated in the ICRIER survey where 89 per cent textile and apparel manufacturers favoured FDI in retail. Sourcing involves technology transfer to manufacturers, which leads to improved quality, cost reduction, sound marketing techniques and introduction of global best practices in management and logis tics.

The global procurement and expansion of super market retail chains are driven by the need to locate the best merchandise at cheapest prices anywhere across the world. Modern trade creates vital market access for small and medium enterprises (SMEs) and improves productivity through training and investment. For India, this can open up a vast global market for SMEs in products like apparel, home textiles, leather goods, gems and jewellery etc. where it has a competitive advantage.

Japanese supermarkets like Akafudado and Daisei, are flush with Chinese SME products. And the 99 Yen shops in Japan and One-Pound shops in the UK are flooded with Chinese goods, a signifi cant proportion of which comes from SMEs. This is something that can happen with India too if SMEs are able to exploit the opportunities which global retail chains can provide.

First Published: Dec 14, 2005 14:22 IST