More reforms needed to address slowdown in growth

Written by MG Arun | Vaishnavi Bala | Updated: Oct 4 2012, 07:56am hrs
Following the governments nod to open up multi-brand retail to foreign investors, there is a raging debate on the advantages as well as shortcomings of the move. According to Raju Bhinge, chief executive officer of Tata Strategic Management Group, the consulting firm of the $83-billion Tata Group, there are still more reforms left to be done, since allowing FDI in retail alone is not going to bring in growth in the near term. In an interview with MG Arun and Vaishnavi Bala, Bhinge said kiranas will end up modernising rather than be extinct and the customer experience will also be enhanced. Edited excerpts:

How do you view the sudden spate of reform measures, along with a much-delayed hike in diesel prices, that the government announced in September

The government has decided to give a push, but Im not sure if its the best timing. The pain would have been lesser had the R5 hike in diesel been spread out over a period of time. In another six months, the government will be in Budget mode, then election mode. So, from now to February is the only window of opportunity available. There is a lot left in terms of reforms. While the measures taken were necessary and long overdue, by themselves how much they solve growth problems is a different matter.

What sort of interest are you seeing from companies in retail in the post-reform context

Some big names have already planted themselves in India. They were just waiting for the policy change to happen. They have already put together a supply chain. Walmart says it will take 18 to 24 months for the first store. So, it doesnt change anything in the short term. For four to five years, one will hardly notice any impact on account of FDI in retail. But beyond five years, what this will do is modernise the whole sector the way FDI in the automotive sector modernised supply chain, created benchmarks and standards and improved the automobile sectors operations.

There is a lot of debate around the future of small-time retailers or kiranas once the likes of Walmart or Tesco open stores. How will they be impacted

Kiranas are not going to be extinct, but at the same time, saying they will be unaffected is also not right. Large retailers certainly create a competitive challenge. But the growth rate of the economy is such that it will absorb both. The small stores will end up modernising. Their supply chain will change. They might very well buy from the wholesale format so that they get access to what they want at wholesale prices. This is already happening. There is nothing stopping a small store from going to a Walmart or Metro Cash & Carry and doing their sourcing from there. Their sourcing and store demeanor will improve. Customers will get a better experience. Farmers, on the other hand, will have the option of having a long term contract with a large retailer rather than going to the mandi.

Will all these measures help improve the slack growth in the past few quarters

Growth will be tempered now. If we are at 5.5% growth in the last quarter, the momentum is still slowing. For the first time last month (August 2012), the two-wheeler industry reported a decline year-on-year. In September, too, companies said they are expecting a decline. Two months of back to back decline is a clear indication. If it happens a third month also, then it is a trend.

Have high interest rates slowed growth

I dont think high interest rates have stopped investment. Consumption has been keeping up till recently. However, investment has gone down due to other reasons, the whole sentiment has gone weak and everything has slowed down. The government has to take steps to drive growth. That I think is still not clear.

How significant is land reforms to spur investment

There are people saying government should not help in land acquisition, but how does one acquire 1,000 acres in a contiguous stretch

Thats not possible without government support. One can never get a project going then. So, government assistance in land acquisition is essential. The land acquisition bill has to be looked into. Last year, new projects in power generation side were stopped. Now its even worse, those who were awarded projects then may now face cancellations. The Delhi-Mumbai corridor is running far behind schedule.