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Will customers benefit if FDI in retail opens-up in India?


The big debate in India right now seems to be - Should the government open-up foreign direct investment(FDI) in retail. There are divided opinions on this issue here. Some seem to say the customers will benefit, others say the supply chain will get better in India and a lot of them say the "kirana" stores ( mom & pop equivalent) will die. Wal-mart is waiting to open its first store and has been lobbying hard.

Business World has a good article that gives good insights on the debate:

  • India's supply chain inefficiencies are legendary. The Rs 50,000-crore fruits and vegetables sector is estimated to suffer between 20 and 40 per cent wastage due to poor transportation, storage and handling. "The cost of the intermediary in India is the highest in the world. For every one rupee a consumer spends, the farmer gets 20-22 paisa. Whereas in developed countries, it's more like 70-80 paisa," ....
  • Again, back home, in Chennai, where large and organised supermarket chains like FoodWorld and Nilgiri's have grabbed a 20 per cent market share, the kiranas haven't been slaughtered. They are smarter, more efficient, and more customer-friendly than they were five years ago. They are matching the chains' prices and continue to do brisk business. Even stores in the close vicinity of these large supermarkets have survived.
  • India's retail industry - the fourth largest in the world - accounts for 11 per cent of the country's GDP and employs over 40 million people (about 7 per cent of total employment in the country). Now, a huge majority of the retail workforce is in kiranas. This sector, in fact, acts as an informal social security net - almost anyone without a job can set up a kirana.

I believe the coming-in of big retailers will strengthen the much needed supply chain system in India. It will lead to overall improvement in infrastructure, customer service and of course a lot of jobs will be created. Also, the local "kirana" stores will co-exist with the large ones. Over the past few years, I have seen the local "kirana" stores upgrade their shops and give me better customer service.  It can only get better.

Ultimately, the customers will benefit in my opinion.