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Tuesday, November 29, 2011

Dalits will benefit the most from FDI in retail, says Dalit Indian Chamber

While chief minister of Uttar Pradesh Mayawati feels foreign direct investment (FDI) in retail will drastically impact livelihoods of the dalit section of the society, representatives from the community feel otherwise.

Speaking at a Confederation of Indian Industry (CII) discussion on FDI in retail, Milind Kamble, chairman, Dalit Indian Chamber of Commerce & Industry (DICCI), said, on the ground level, the schedule castes (SC) and schedule tribes (ST) will benefit the most with this move by the government.

“Approximately 8 million new job opportunities will get generated in the next 10 years and a significant percentage of the requirement will be for semi-skilled work force. This is a huge opportunity for the dalit youth who have not been able to pursue education beyond 10th and 12th standard. With short-term training programmes with assured placement being offered by most retail chains the dalit youth will be able to get gainful employment in these retail stores as well as other support areas including logistics firms,” said Kamble.

The dalit entrepreneurs are also set to benefit from the local sourcing clause which is one of the caveats for approving FDI in retail. “Of the overall sourcing by the retailers, 30% will have to be sourced locally of which around 4% will have to be from companies run by dalit entrepreneurs. This is again a very good move by the government and will work towards development and growth of the community,” said Kamble.

Rupa Mehta, chairperson, CII (WR) Family Business Task Force, said, previous experience has shown that good small and medium enterprises (SMEs) have survived and prospered well that too in face of competition. “I do not see any reason to change this optimism. Despite concerns about small kirana shops getting impacted leading to closure, not a single store had shut down in the past five years when modern retail grew to 7% from 2%. I firmly believe that Kirana stores today will innovate and change their complexion, but not go out of business. With this policy decision, Indian SMEs will get opportunities not only in Indian supply chain but also access perhaps to global markets,” she said.

Echoing the sentiments, Thomas Varghese, chairman, CII National Retail Committee and  CEO, Aditya Birla Retail, said, mom and pop kirana stores will shut down but not because of FDI in retail. “They shutting down because their new generation is not very keen on running kirana stores and wants to explore more lucrative job opportunities that go with the current market scenario,” said Varghese.

Satish Jamdar, vice-chairman, CII Maharashtra State Council and managing director, Blue Star Ltd, said the policy on FDI in retail is the right one and in the large interest of the country. “We recognise that there are some concerns, but it is time to cut through the hype and examine and address those concerns. On the whole, we feel FDI in retail will bring in choice, quality and price benefits to the consumer while providing growth opportunities especially to the farming and manufacturing sectors. Also today the service industry is a large generator of employment. Of the service industry, retail industry will potentially be the largest employer, if we factor in the back end infrastructure support. Consumers have benefited from the modern trade so far and FDI in retail will act as hedge against inflation,” he said.

Rating agency Crisil feels foreign retailers are unlikely to gain a dominant share over the next five years and that foreign direct investment (FDI) in multi-brand retail will stimulate investment in Indian retail sector. According to Crisil estimates FDI inflows of $2.5–3 billion over the next five years is modest in the context of overall FDI inflows of $160 billion in India over the past five years.

While food and grocery (F&G) vertical would attract a larger share of the likely FDI inflows, the clause specifying 50% investment in back-end infrastructure especially aligns with the commercial requirement in this segment. F&G accounts for two-thirds of Indian retail sales, but currently has organised retail sales of only around 2%, the lowest among retail verticals.

Ajay D’Souza, head, Crisil Research, said, “To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale. Every percentage point reduction in supply chain cost and resultant gain in earnings before interest, taxes, depreciation and amortisation (EBITDA) margin can improve equity internal rate of returns (IRR) of an F&G store by 250-300 basis points. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity.”

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