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'Mom & Pop stores will be killed anyway'

Govt has cautioned neighbourhood stores that they would be 'killed' by competition if they do not promote consumer interest.

india Updated: Feb 23, 2006 13:09 IST
Press Trust of India
Press Trust of India

As the debate over fully opening India's retail sector to foreign direct investment continues to simmer, the government on Wednesday cautioned neighbourhood stores that they would be "killed" by competition if they do not promote consumer interest.

Whether or not the sector is fully thrown open to foreign players, domestic retailers would have to face stiff competition from home-grown organised retail chains, warned Department of Industrial Policy and Promotion Secretary Ajay Dua.

"What difference does it make if you are going to be killed?... Whether by domestic (retailers) or outsiders," he asked at a seminar 'Shifting Paradigm in Retail Management' organised by industry chamber Assocham and NIS Sparta.

While the government has already allowed 51 per cent FDI in single-brand retail, Dua, however, said that no decision had been taken yet on fully opening the sector to FDI.

India's organised retail sector has been growing at 18-20 per cent annually, but it accounts for only three per cent of the total retail business.

Since the retail space was "bound to grow anyway, so why not maximise benefits to consumers," Dua asked.

He said organised retail promised benefits to consumers in the form of cheaper and quality goods, as large corporates would be able to source goods cheaply, process and transport them cheaply.

But the cost benefits could be passed on only if there was competition, the DIPP secretary clarified, adding that mom and pop stores too had advantages in terms of convenience, personalised service and credit facility they offer to the customers.

Wondering whether advantages offered by the traditional 'kirana' (grocery) stores like personalised service and credit to consumers could be outweighed by the organised sector, Dua said the fact remains that entry of large chains would fuel investment in both front-end and back-end areas.

While front-end pertains to infrastructure and computerisation, back-end investment relates to transport and logistics.

Allaying apprehension from labour unions and other quarters about loss of employment in the un-organised sector once large chains enter the business, Dua said multinational retail major Wal-Mart has in a report to the government said that it had rehabilitated those who had lost jobs.

The DIPP Secretary acknowledged the fact that allowing FDI did not always yield the expected results and said safeguards would be provided for whenever a decision is taken to permit MNCs to invest in the space in India.

He favoured imposing conditions like allowing MNCs to open stores only in suburbs (where there are fewer domestic retailers), stocking 50 per cent of their stores with agri products (to fuel investment in the sector), restricting them to open only one store in a city per year (which would stagger their expansion) and finally placing a condition to bring in at least $10 million as investment.

First Published: Feb 22, 2006 14:30 IST