If an Amazon can buy into India’s brick-and-mortar firms, why not ease FDI policy in multi-brand retail and see jobs surge?
Amazon’s purchase of a 5% stake in Shoppers Stop has given the e-retailer access to a not-so-small brick-and-mortar presence for a piffling amount of less than $30 million. To be sure, Shoppers can tap Amazon India’s customer base, a potential 600 million eyeballs, and that will help it build an omni-channel presence. But equally important is the fact that Amazon can now open outlets across 80-odd Shoppers’ stores, where customers can check out the merchandise available online. The tie-up would suggest Amazon, which is ostensibly building an e-commerce business in the country and committed to spending some $5 billion, feels it is useful to be seen on the ground, too. But instead of spending big money on rolling out a chain of stores, or even small outlets, it is simply piggybacking on Shoppers’ ready-made infrastructure, at a minor expense.
Had the government wanted, it could have attracted big-ticket investments into the retail space because, not so long ago, a clutch of global retailers, including Walmart, Carrefour and Tesco, all saw merit in setting up retail chains in India. They were willing to commit reasonably-sized investments and would surely have invested larger sums over time had things gone to plan. Critically, these brick-and-mortar chains would have created jobs in large numbers. However, for fear that kiranas would be steamrollered by these big-box players, the government denied multi-brand retailers 100% ownership in their Indian ventures. Moreover, it created such a complex web of rules and regulations—both numerous as well as onerous—it would deter even the most persevering of players. The result was that not a single chain was set up; Carrefour went home and Walmart decided it was best to stay with cash-and-carry. Thanks to government’s insistence that a certain amount of investments be made in back-end infrastructure, not a dollar came into the front-end. By making it virtually impossible for foreign retailers to set up shop here, the government lost a big opportunity to create thousands of jobs. One has only to look at the e-commerce ecosystem created by the billions of dollars from private equity and venture capital firms to see how many white-collar and blue-collar jobs it has created.
It might still not be too late to make amends. While it might seem e-commerce is the way forward, the fact is India still has only around 10 million active online shoppers. Moreover, online retailing—estimated at an annual $10-12 billion—accounts for barely 3% of total retailing. In fact, the exit of the Aditya Birla Group from the online space—because it is unable to compete—would indicate that even as the former will grow exponentially, no one’s writing off brick-and-mortar stores just yet. Which is why, it is possible foreign retailers may be willing to invest here, provided the approvals don’t come with too many strings attached. At a time when manufacturing is taking away jobs rather than throwing up opportunities, creating jobs in the services sector would appear to be a good option. However, the government must make it easy for global players to do business here, not strangle them with regulations. A boost to the retail sector will mean a boost for real estate, too. And, in general, for the economy.