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Retail Chains Lobby Minister Against 100 Per Cent FDI In E-Commerce

Gurbir Singh and Vishal Krishna, Businessworld

New Delhi/Bengaluru, 9 July 2015

As many as 12 big retailers, including Future Group, Landmark, Shoppers Stop and Globus, met Commerce Minister Nirmala Sitharaman in New Delhi on Wednesday and pitched strongly against the Union government’s proposal to grant 100 per cent foreign direct investment (FDI) status to e-commerce and e-tailing companies.

Led by Future Group CEO Kishore Biyani and Shoppers Stop vice chairman B.S. Nagesh, organised retailers demanded a level playing field between the brick-and-mortar retail industry and e-commerce.

They also presented a memorandum highlighting the violations and what they call "malpractices" of e-tailing giants like Flipkart and Amazon, who they claim have made a mockery of the current 49 per cent cap on FDI in organised retail.

"It was a good meeting. The minister gave us a long and patient hearing. We asked her: On what grounds was the government discriminating between physical retail and technology-based ecommerce?" Kishore Biyani told BW Businessworld.

The Commerce Ministry has lined up a series of consultations with other stakeholders too. Sitharaman will meet e-tailing chains, including Flipkart, eBay and Snapdeal, on 10 July and the chief ministers of various states on 15 July before the issue is decided by the Union Cabinet.

E-tailers have raised Rs 24,000 or more and the digital purchase of consumer goods has been galloping over the last 2-3 years. Impressed by the growth figures, the government is sympathetically looking at a proposal to grant this sector "100 percent FDI" status.

"Investments will help e-tailers scale up to many more cities. Smartphone usage has been high and there is a clear trend that people will also shop from homes," says Vipul Parekh, co-founder of Big Basket.

Retailers’ Concerns However, the details of the Commerce Ministry’s intent are not yet out in the open. Retailers fear that if e-tailers are allowed better access to foreign capital, the level playing field between two types of consumer services will be disturbed and e-tailers will steal a march over access to supply chain logistics. The foreign monies raised by the e-tailers will enable them to create a strong warehouse-to-home connect, and they can even dominate in segments such as delivering fresh fruits and vegetables.

Perhaps the only thing keeping e-tailers from making a clean sweep would be the fact that 70 per cent of Indians live in rural areas where access to smart phones and computers is limited. Management consultant Gartner predicts that there will be more than 240 million smart phones bought per year by the Indian public. The total broadband penetration can double to 200 million by the same period. But consultants have mixed reactions.

"Policy in India cannot look at retailing in a western homogenous growth model. It surely cannot open up FDI without looking at the impact on socio-economic and cultural conditions," said Devangshu Dutta, CEO of Third Eyesight, a retail consultancy. He adds that the government needs to open up FDI in a phased manner.

This is true because over the last three years there has been a policy paralysis that has stalled the retail industry. The e-tailers Flipkart, Snapdeal and Amazon follow a market place model and yet end up losing more than Rs 9,700 crore on discounting and reverse logistics alone.

Hundred per cent FDI is allowed in market places. "The e-commerce industry needs a fillip and the government has already shown interest in making India an investor-friendly country," says Rajiv Khaitan, founder of Khaitan and Company, a law firm.

"Rentals have always eroded the business profits of brick and mortar retailers," says Sanchit Vir Gogia, CEO of Greyhound Research. He adds that with FDI only in e-tailing they, the brick and mortar retailers, can use their stores more effectively in delivering goods through their own e-tail channels across cities and towns. "It saves so much real estate cost that can directly go in to shareholders income in the long run," says Gogia.

Biyani, on the other hand, says the government’s definition of e-commerce as technology-based trading as basically flawed. "Don’t retailers like us use electronic technology to sell goods as well? Or, don’t e-tailing chains have a huge brick-and-mortar backend? So on what basis is the government favouring e-commerce as a special category?" Biyani asks.

The case of the retailers is that if the government wants to open 100 per cent FDI, it must do so for all retail trade, irrespective whether is sold through physical stores or through digital channels. This is something the Union government can do only if it willing to take on the wrath of several lakhs of mom and pop kirana stores in the country.

(Published in Businessworld.)

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