Is FDI in retail a death knell for SMEs?

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: Various ministers of the present government are proposing FDI in retail. We believe multinational retail and WB-IMF lobbies and some self-serving bureaucrats are supporting it. This proposal will create multiple East India Companies in our country and affect livelihoods of 1.2 crore small retailers. Isn’t the proposal anti- national?

—Rakshpal Abrol, president, Bombay Small Scale Industries Association, Mumbai

The idea that there is a multilateral conspiracy in allowing FDI in retail is too narrow a view. Let’s dwell into the issue pragmatically. First, FDI in retail was allowed till 1997, the year when India agreed to remove quantitative restrictions (QRs) on 2,700 items, mostly consumer durables, over a period of five years. Perhaps, the move was to address fears of mass import of consumer durables by large retailers. There are already many foreign retailers who secured permission before 1997. Even now FDI is allowed in retail though with certain conditions, e.g. if the marketed goods are manufactured by SSIs. And100% FDI in wholesale trading is already permitted, as in case of ‘Metro Cash n Carry.’

Second, there is no restriction for Indian large corporates to enter into retail. Tatas, ITC, Raheja, RPG, Hiranandani, DLF etc have massive expansion plans and the capability to invest billions of dollars on their own. Our urban markets are already under transformation with modern format retailers such as super markets, department stores, speciality chains, besides ‘company owned-company operated’ stores, as well as dedicated brand stores.

Third, look at the impact of stores like Wal-Mart on small US retailers: Overall, retail sales increased substantially. And, retail sales were adversely affected in areas such as speciality stores, apparel, grocery etc. but, increased in general merchandise, home furnishing, food and drink etc. (Centre for Applied Economic Research, Montana State University, USA). The decline in sales in a few key items can be explained: American companies were not able to compete in areas like apparel and grocery, which were sourced by large chain stores from countries like China, while small retailers could not import.

Fourth, consider the case of China. After opening up FDI in retail in 1992, retail grew at a CAGR of above 13% per annum. The number of retailers in traditional format (small retailers) actually increased by 30% between 1996 and 2001. The reason is that unlike their US counterparts, small Chinese retailers could source goods from the domestic market and compete and benefit from improved products and better logistics induced by large supply chains. India too, has a strong manufacturing base in consumer durables. Thus, the fear that FDI in retail will devastate small businesses is grossly exaggerated.

India’s retail sector is already undergoing a change propelled by evolving consumer demand and lifestyles, urban chaos and shortage of retail space, integration of markets, a need for revamping logistics, and above all, global competition. FDI may hasten this change, and even benefit SMEs. It would be better if FDI is allowed in phases, giving time for policy adjustments, and with appropriate riders on procurement to ensure that small producers gain from it. The debate must shift into the realm of ‘how’ instead of ‘why’.

We exported carpets to a Greek firm on CAD basis. Citing delay, the buyer asked for 47.5% discount. We agreed against cash payment, got RBI’s permission and issued a fresh Bill of Exchange. But there’s no buyer response. What should we do to stop the auctioning of our goods, which are still at port and get our payment?

—Super Quality Carpets, Chauri Road, Alampur Badohi

From your communication, I presume you sent the consignment without ECCG cover. The CAD basis is not a safe instrument. If you did not send the original set of Bill of Lading directly to the buyer, there may still be some chance to realise the payment.

First, get your banker to communicate to the buyer’s bank that the party has not made the payment, and the documents should not be delivered to them. Second, immediately instruct your shipping agency asking them not to deliver the consignment to the buyer. But, if you are afraid of auction of goods by port authorities, there is little you could do except to go there directly and seek assistance through the Indian embassy.

In case the buyer has taken possession of goods already, you may take help from private bad-debt collection agencies. There are many such agencies in Europe, which you can easily find though the internet. Choose one that does not ask for upfront payment, but works on commission basis. Some of these agencies which you may try on your discretion could be: Your Collection Solution, Inc. Tel: +1-954-475-9656; 1st Locate UK Limited Tel: +44113-228-4452; CBC International: Tel: +44-151-5153014 Fax: +44-151-5153015

— Anil Bhardwaj is secretary-general, Fisme.