Saturday, September 22, 2012

My Newspaper Vendor and FDI in Retail...

Today I again got to see my Newspaper vendor of over three years, after more than six months gap!

He has got used to being my vendor so much so that he doesn’t even consider it necessary to visit me and collect the payments on a regular basis.  That always created a problem for me since I have to keep the amount in cash with me all the weekends, expecting him to come for collection.  He of course, wouldn’t accept cheque payments.  I was however, willing to bear this inconvenience because I am generally a loyal customer who hardly changes his suppliers or brands unless I have compelling reasons to do so!

Of late, he has been giving me a rather very compelling reason to change him! He used to supply the newspapers at around 8.00 am on all days. I adjust all my morning chores so as to be ready by that time so that I get at least 50 minutes to read my papers.  But for the last one month, he started supplying the papers at around 8.30 and some days it was only supplied after I left home at 9.00.

Two things I hate in my life are getting up in the morning even one minute earlier than what is really necessary and stepping out of home without having read the day’s newspapers!  In this world of instant messages and live news, who wants to sit and read a newspaper in the evening? By then the entire focus of attention would have changed to new breaking news.

Finally, I decided enough is enough and prodded our security staff to find me another supplier.  They found a guy who was willing to supply the papers by 7.00 in the morning.  It was too tempting an offer to which I immediately latched on to. He began supplying from the very next day and I requested the security to inform my existing vendor to discontinue.  I got two sets of papers for a week, before the old guy was finally conveyed with the message to discontinue! 

He met me in the morning today and tried to promise to mend his ways.  I conveyed my helplessness now that the other person is supplying too.  Finally, he grudgingly agreed to discontinue the supply and also promised to give the account and collect his dues in couple of days! Meanwhile, I got to know that the new vendor is now supplying to many more houses in our society, who were equally miffed with the existing vendor!

Have I done a mistake by changing the vendor? Have I taken away the right to livelihood of that vendor when I brought another vendor in his place?  The fact that this new vendor has not only got my order but also orders from many others in my housing society, since his timing of supply is more suitable to them as well, aggravated the loss of the previous vendor. 

My need to get the service on terms suitable to me, or his right to continue getting his business- which one should get preference over the other?  To me the answer was obvious!  And to my simple mind, same logic applies to all other businesses including multi brand retail as well!

All these years, this vendor has enjoyed monopoly in distributing newspapers within our Housing Society and has become complacent in the absence of any competition. When it was not convenient to him to supply the papers by usual time, he just changed the time of his supply, not making any effort to meet the requirements of his customers!  Now that there is a competition, he is willing to make that extra effort to meet his customers, find their needs and adjust to that.

This has been the situation in almost all businesses in India prior to the liberalisation and globalisation measures initiated in 1991.  We needed licenses from Government to commence any business.  Licenses were refused on the ground of increasing competition and capacity! Businesses thrived under the protection of government and politicians without any competition whatsoever.  There was no need to adjust to market conditions or innovate or increase efficiency in operations.  However, with opening up of the economy and the partial removal of the License Raj, competition began affecting the existing businesses.  We heard loud protests from Left and Right wings of political spectrum in the name of ‘Anti- neo colonialism’ and ‘Swadeshi’ respectively.  In short, they all wanted to continue the protection enjoyed by Indian businesses at the cost of economic growth and efficiency.

We all know what followed. At least those who are beyond their teenage must know the revolutionary changes and growth those simple (half-hearted) measures brought to India, that India came to be discussed as the new economic super power.

Even if they don’t agree to the economic growth etc, at least they would know the difference in terms of availability of choices, be it in TV channels, mobile phone services, airlines, shopping malls, eateries or many other such areas that affect their everyday life! 

The competition and infusion of foreign capital has not weakened Indian economy or Industries.  It only weeded out unfits and made rest of the players stronger

In continuation of the liberalisation measures, India had opened up its multi brand wholesale sector for foreign investment.  As a result, multinational companies like Walmart, Carrefour, Metro etc have already registered their presence in many Indian cities by way of wholesale Cash & Carry operations.  However, efforts by successive governments (which included both NDA and UPA) to open up multi brand retail sector was always resisted by the political parties, keeping in mind the protection of nearly 40 million people working in these neighbourhood shops, also known as Kirana shops.

As a result, these the retail trade in India, which account for nearly 15% of GDP, has failed to change according to the time by taking full advantage of the growth of economy.   Except for a minute portion of new generation enterprising traders, most of the shops remained in the age old mould, making it a very inefficient sector.

Have you ever considered, why we have high inflation (significantly contributed by fruits, vegetables and other food items) on the one hand and farmer suicides on the other? It simply means, the high prices that consumers are forced to pay for these products are not reaching the producers, i.e., farmers.  A lot of it is being sucked out by the long chain of middlemen who thrive in the absence of organised markets for agricultural produce.

FDI or Foreign Direct Investment (which is in fact different from the entry of multinational retail chains) in multi brand retail sector or even entry of the Walmarts of the world is not going to make any significant change in the sector, at least for many years in the beginning; much in the same way as the super malls have hardly affected any small shops in the neighbourhood.  

No existing shopkeeper is likely to lose his business for the simple reason that he will be catering to a different set of consumer needs like proximity, small quantities, credit, home delivery etc.  So long as they provide these niche value add, not much diversion of customers will take place from neighbourhood store to large retails shops.   As an aside, if all the supporters of the political parties who are now opposing the FDI policy, remain true to their ideology and keep away from the ‘MNC chains’, the small shop owners have nothing  to fear!

The new large stores or chains will only partly absorb the growth opportunities provided by an estimated 12 to 15% year on year growth! At least for now, not more than 53 large cities (with more than one million of population) and 5 or 10 other cities that may be notified by states and UTs with no city having more than one million population will be eligible to have these stores!

What these chains will make, in my opinion is a cultural shift.  Trading will shift from a caste and family based activity to more professional activity over the years.  The choice available to the consumers (even if limited), will force the service providers to change, like the Newspaper vendor!  In order to retain the business he will innovate and make it competitive and niche.  They will be forced to find ways to eliminate multi-layer middlemen and reduce the gap between farm/factory prices and retail prices.

As for the loss of job for middlemen and the traders who are not willing to adapt to new changes, well, there will always be some collateral damage to any change.  In every business some failure do occur. No one has a right to remain in a business that he is not capable of running efficiently and competitively.  Adapt or perish is the only survival mantra for any service provider; traders being no exception. 

To conclude, the new retail chains or FDI in retail (much same as my new newspaper vendor) is neither a panacea nor a livelihood shattering evil step.   It is merely a small part of overall reforms of our economy to ensure its growth and efficiency so as to meet the demands of an every growing and demanding population. 

PS: For a more serious and technical discussion on FDI in retail please read my post 'Foreign Direct Investment in Multi Brand Retail Trading- Some Basics'


  1. We fail to see the hidden dangers. Powerful Walmart like groups have a wide hoorizon of procurement sources. They will milk out good sources and leave the dry sources to middlemen suppliers of retail dealers. That means his procurement prices will be high as he has to compete with Walmart like. At present he get and sell vegetables and fruits cheap during season whereas with the advant of WM he cannot get any item cheap even during season. Walmart also won't sell it cheap during season as they have better storage facility. As a result fruits and vegetables will be costlier both with Walmart and with local procurer.WM can cover only cities with 1 million pupulation which might be less than 60. Rest of the places have to be covered by present traders. With the advant of WM they have to compete with WM in procurement and naturally his procurement and selling prices have to be highers. Net result consumers have to pay higher prices in WM and to local dealers

    1. I dont know why we are not hitting the basics of FDI? basically FDI doesnot mean anything but a "document" in form of Cheque or otherwise, which permits the local banks to introduce equivalent rupees in the Indian market.Therefore net result is 1. Introduction and flow of money is commanded by other than government of India. 2. How shall economy shape is decided by the person giving that "document". since basic function of the government is to regulate the flow of money and shape of the economy by allowing FDI, we are letting the governance being decided by some foreigner. Result cannot be anything but 1. inflation, b. exploitation of resources for greed and not for collective social good of the nation, and c. wanton consumerism by few and deprivation and sometimes exploitation by soft loans for others d. concentration of wealth in hands of outsiders and channelising agents of that FDI. This type of FDI can never give equitable growth. Economic growth can be only when all the hands and brains of indians are allowed to participate in growth engine. FDI uses brains and hands of few, resources of the nation and make rest of them as consumer of their product. Result is a growth of economy of the originating nation and exploitation and detrioration of "governance" of the nation having dependency upon the FDI. Money is not resource for governance, it is an instrument to regulate the economy, and works as catalyst in using the brains, hands in transfering the natural resources in usable and productive services or goods. best economy os the one which uses maximum of its population in this economic growth of resources and services that flow of money, issued by the government, flows through the maximum possible hands. Government policies need to be such that money is vaialble easily to such innovative producttive hands by make easy availability by reducing interest rates, reduce taxation so that risk goes down, and encourage productivity so that tax collection is compensated by the growth and not by increasing taxes. Further, government is calculating "cost" and "profit" even in delivering the governance, whereas it need to focus on cost and benefit, and confine its activities only to governanace and regulation. Business of the cos and profit need to be left to private brains and Hands but people of India, Government shall make suitable policies and infrastructures so that sustainable model dependent upon Our money, our resources and our manpower can grow and improve overall human index.
      Chinese are doing almost that.

    2. I wish what you stated above were reflecting the reality! If it was so, then we wouldn't have a problem in giving petrol and diesel free of charge because we will just be giving a 'document' to the oil exporters and nothing like money!

      I am not an economist and this is not a place to explain the concepts of foreign exchange, purchase parity and balance of payment etc.

      FDI ensures that money brought into the country (document or otherwise) is used only for investment into capital assets and therefore it provides longer term stability to Indian currency, increasing its exchange value viz a viz other currencies.. That reduces the huge import bill (and the subsidies on substantial oil import)and will actually reduce the inflationary trend. If at all, FDI will only cause growth related inflation caused by increased purchase power of people, which in itself is not a bad thing!

  2. Hi,
    This is gonna shock all of you , out of your pants.
    It was decided in the Bilderberg club long ago, to gate crash into Indian economy, by a conspiracy.
    If you want to know what this elite club is –
    Punch into Google search
    And if you want to know who runs the Bilderberg club by remote control—
    Punch into Google search
    The banking cartel had been given a toe hold in India, by giving away FDI in multi-brand retail and FDI in insurance.
    Insurance affects transport costs and trade costs -- it requires perception to understand all this.
    Patriotic Indians wake up!
    DORKS and desh drohis shall lay off !
    Capt ajit vadakayil

  3. I like the article and I am for FDI in retail. I have noticed that the counter arguments/comments address the livelihoods of middle men and rightly so to an extent. In addition to what Mr Ambadi has already conveyed, My perception of the situation is that change is being resisted. Change which would displace some from an established comfort zone and force some to think in a competitive manner and a little out of the box. I am certain to a great degree that the middle man will find a way to make a place for himself/herself in the new retail environment. Additionally, keeping middlemen aside for a while, whatever happened to the livelihoods of the farmers? Where is the concern and outrage when farmers commit suicide due to lack of better prices, low output and exploitation to name a few?
    FDI in retail will also result in an increased sense of economic security among farmers and will encourage them to improve upon and adopt modern and sustainable agricultural practices and thereby improve the output of their land. The massive agrarian economy that we are, increased farm output may not only ensure a place for the middleman, it may and should provide us with considerable amounts to export.

  4. confusion is that retail is the end point of business supply chain from production to consumption hence most vital, voluminous and profit generating and would hardly see a slowdown as it is least affected by the economic turmoils in the upper levels, that is why the eagerness with which FDI is ready to enter in this turf not in other sectors like manufacturing, airlines, infrastructure.will it be wise to give such sector to foreign retail with much endurance for losses and much deeper pocket for market maneuvering
    2 it is to generate confidence in foreign investors FII's, why did we loose that confidence, when their own markets were drowning and under step recessions which policies made a relatively insulated market like India to loose that interest, who will ponder over that.
    3. why do we project FDI(not only retail) as a panacea to all our economic problems economic ills when will we start generating enough capital to feed our business and infrastructure needs and when will we make ourself strongly with other international currencies
    4. the structural inflation which has weakened our economy with export slowdown is quite visible since UPA-2 has taken reins of governance, there has been no effort to rectify this rather crony capitalism has seen its most vivid days during both their tenures, it seems like they were creating a stage for leaving FDI as the only way out.
    5 these are just few in the long list of why FDI should be there, will govt answer them?