Traders fear FDI will bring predatory pricing


December 1, 2011

The Times of India

Bangalore, December 1, 2011

Traders in Karnataka are livid at the Centres move to allow 51% FDI in multi-brand retail. The state is home to lakhs of processing units which, traders fear, might take a hit. The FDI in retail creates predatory pricing, says Bharath Shah, vice president, southern chapter, Confederation of All India Trades (CAIT), New Delhi.

Karnataka, for instance,has over 25 lakh processing units involved in dehusking and processing dal. Big retailers are capable of sourcing close to 30,000 bags of these on a daily basis, whereas a kirana owner can manage only 200. This creates monopolistic pricing in the market, he added. In the FDI policy, the government has mandated 50% investment by foreign partners in the back-end subject to a minimum investment of $100 million.

Retail experts played down the fears of kiranas losing out to big retail. The opening up of the retail sector will benefit ancillary development.Supply chain and transportation is ancillary to retail that will reduce wastage from farm to fork, said Anil Talreja, partner at consultancy firm Deloitte.

Trade associations feel the government advocating FDI in multi-brand retail to bring down inflation is quite contrary to its stance. The government itself, through the finance minister informed the Parliament that high inflation is due to high global food prices. If thats the position,how will FDI bring down inflation, said JR Bangera, president, FKCCI.

A section of the industry feels government needs a calibrated approach for introducing FDI in the retail sector. Devangshu Dutta, chief executive at retail consultancy Third Eyesight, says states retain the power to allow or disallow foreign-owned retail businesses from operating within their boundaries,and local and regional political parties would certainly have an impact on retailers expansion strategies.

Dutta draw a parallel with China where it took 12 years to liberalise its FDI regime. It first allowed FDI in retail in 1992 at 26%,took another 10 years to raise the limit to 49%,and allowed full foreign ownership in 2004,but only in certain cities. It even revoked some previously granted approvals to reduce foreign retailers footprint, he added.

Despite all the anomalies,Dutta feels the retail sector is capital intensive and large Indian retailers can use foreign equity and cheaper foreign debt to reduce high-interest domestic debt,and infuse more funds into growing the store footprint.

Consumers,too,say they might see a shift if the retail FDI is allowed. Fisheries businessman from Indiranagar, S Guha, makes his weekly trip to Nilgiris store on Brigade Road to buy his weekly stock of staples and greens. Old habits die hard. I’m loyal to Nilgiris, he says, an interesting observation given the FDI hullabaloo. We will see a shift in shopping patterns that may lead to over-consumption, he said. Deep-discounting products will not only stimulate demand,but will keep customers away from kiranas and neighbourhood shops,he said.

(Read: "Debate on FDI in Retail — More Heat than Light")