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22 Mar 2012

Have we oversold the India story ?

Indian Economy From Aviation, Retail , Healthcare & SEZ Perspective

A lot of experts spoke about the robustness of the Indian economy when the global recession of 2008 did not entirely slow down India’s growth. Experts spoke at length about the pragmatism of India’s central bank leadership and its policies to have evaded the crisis. They even spoke about the sturdiness of the capital market and the role of the regulatory authority.  Today the global crisis is over in most of the nations. United States is back on track with the unemployment figures at a controllable rate and the retail spending picking up. Similarly Japan is expecting the return on investments it made after the Tsunami crisis last year. The amount spent on reconstruction has boosted the economy and it is expected to grow at respectable 2 percent this year. Only Europe seems to be lagging behind, however it must be taken into account that integrating economies of over 30 nations is a daunting task and credit has to be given to EU’s leadership for having dealt with the crisis in a respectable manner.

When compared to the growth rates of these developed nations India’s 7.6 percent growth rate seems to be enviable. So is everything great with the Indian economy? Is it really faring the way it is being projected? Every year fiscal consolidation is the buzzword yet the budget keeps running into deficit. The finance minister keeps promising to bring it under control yet deficit has increased from 4.6 percent last fiscal to 5.9 percent this fiscal year. Most of the deficit is on the account of food, fuel and fertilizer subsidies. The government keeps making provisions for the underprivileged but it is equally true that they are not getting the desired benefits. Most of the provisions are limited to mike & paper.

Let us evaluate the top most (so-called Sunrise )  sectors in India that are consumer driven and how they are faring – Retail , Healthcare , Aviation and also the ‘Oversold & over hyped SEZ story’.

We will have a moment of truth !

Aviation Industry

The India Aviation industry is in a tailspin. Every other day Air India, Kingfisher, Jet Airways etc are making the headlines for all the wrong reason.

Air India the state-owned company has been relying on frequent government bailouts for its existence. Air India alone was responsible for the 10 percent of the global aviation industry losses in the year 2008 while it handled dismal 0.35 percent of the global passenger traffic.  It is also over staffed with over 500 employees per aircraft whereas the industry average is around 120.

Kingfisher airlines owned by the flamboyant liquor baron Vijay Mallya is in troubles. Banks have finally decided to withdraw support in terms of providing further debt.  The only hope which the country’s third largest carrier can have right now is a government bailout. However there is a vehement opposition to such an action by the government. Experts and other industrial groups have strongly advised against such an action as it is a free market economy and it would amount to sheer wastage of taxpayers’ money.

Jet Airways has recently been in news when the tax authorities decided to freeze its account as it was about to default on its service tax payments. The Jet Airways spokesperson attributed the problem to rising crude oil prices and the high airport duties and lack of support from government in terms of policies. According to them the delay in service tax payment was a minor operational issue. However the mounting losses over past few years tell an entirely different story.  They were in news few years back for having laid off over 1200 employees and later taking them back next day after intervention from a local politician.

Other airlines in India like Spice jet, Go Air etc. have been on the fringe and have been moving back and forth from black to red.  An only Indigo airline is making profits. Several other have bowed down under pressure. They were either forced to shut down operations like Paramount Airlines or they managed to exit at the right time like Air Deccan and Sahara Airlines.

So what exactly is ailing the airlines in India?  Rising crude oil prices are often quoted as the culprit. In India fuel cost is almost 40 percent of the operational cost of running an airline whereas in other countries it remains around 15 percent. High fuels cost give little margin to maneuver in terms of other aspects like offering attractive tickets rates and other offers. However this is not the entire picture. Even though the crude prices reduced from $ 156 barrel to $70 barrel in 2008 to 2009, the Indian carriers continued to bleed and posted losses.

The real problem is of excess capacity due to overselling of India’s growth story . India’s daily domestic passenger traffic is approximately 1.51 lakh passengers whereas the capacity is around 2.16 lakh passengers. Imagine the revenue loss everyday on account of unused capacity. This has happened only due to the mindless unplanned expansion by the airlines hoping to cash on the Indian Incorporation growth story sold by the gang of politicians right from Sonia , Manmohan & inefficient Pranab and highly promoted Montek !  The airlines promoters were chasing numbers which was arrived on mere speculation & playing a ‘Valuation game to make quick buck’. They went on buying spree and expanded their fleet. Today the aircrafts remain underutilized.  India has the aircraft flying hours of 12 per day compared to 16 per day internationally.

Looking at the complete picture it is difficult fix the responsibility on the airline owners. They are capitalists who are driven by market forces. They anticipated growth in market based on market forecasts and other factors like projected rate of growth of GDP. They expected growth in industrial output and service industry output and subsequent increase in airline travel. However the reality was far removed from it. The India Incorporation failed to deliver and they were left in lurch. Today they are hoping for a miracle to save them from their predicament.

Losses Made by Major Domestic Carriers in India

Carrier Cumulative Loss 3 years (Cr)
Air India 13,000
Kingfisher Airlines 3900
Jet Airways 2400

Retail Industry

According to the experts the retail trade industry in India is having a bright future & is consumption driven due to the ‘reducing poverty due to social schemes and increasing middle class due to India’s growth story ‘. One of the studies by North bride capital expects it reach about USD 850 billion by 2012. Out of which organised retail will be having a share of over 20 percent. In numbers it over USD 175 billion. That is a huge market. According to others this figure will be achieved by 2015. Similarly other reports have painted rosy picture for the entire industry.  Currently it is increasing at a rate of 5% yearly.  A further increase of 7-8% is expected in the industry of retail in India by growth in consumerism in urban areas, rising incomes, and a steep rise in rural consumption.

As per consulting firm KPMG’s findings in a March 2009 report, the organised retail market in India has witnessed steady growth at 15 per cent in fiscal 2009. It will grow much faster, at the rate of 30-35 per cent annually, than the traditional one in the coming years. Fast moving consumer goods (FMCG) and apparel sectors are likely to drive this growth.

According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010.

A India’s Retail Market Report by Boston Consulting Group

Year

Total Size ($ Billions)

Organised Retail ($ Billions)

Percentage

2005

244

8

3

2006

276

11

4

2007

316

15

5

2008

362

19

5

2009

368

22

6

2010

425

28

7

2011

471

35

7

2012*

528

44

8

2013*

590

55

9

*Forecast

 

The true story of the retail industry: It has become a ‘Valuation game’ due to over selling the India story of the growing middle class 

Subhiksha, Vishal Mega Mart, Koutons , Wadhawan group’s Spinach etc; do these names sound familiar and have something in common. Yes these are players in the organised retail industry who have succumbed and failed to deliver at their promoters expectations. These chain stores were at one time case studies of India’s organised retail success. So what actually forced them lower their shutters.   

According to Jagannadham Thunuguntla, head of SMC Global all these cases are classic examples of the retailers getting carried away by the India’s fascinating growth story and the phenomenal rise of the middle class.

The phenomenon is not limited with these cases mentioned above but also with the so-called successful ones in the industry. Country’s largest department store Shoppers Stop for instance posted an overall loss of Rs.4 crore in the last five years, while its debt soared to Rs.390 crore. The Tata group’s retail arm, Trent decided to close down its loss making chain, Fashion Yatra. It was launched in Oct 2008 and it was aiming at low-income shoppers in Tier 2 – 4 towns. Similarly Reliance Retail decided to close its Reliance Wellness format and not only that it scaled its hypermarket format down in some cities. Hypercity closed down its catalogue selling venture and also got rid of its Gourmet City format.

For the modern retailers penetrating further into urban markets has become a challenge. They have no option but to continue to create, preserve and then destroy the store formats they have come up with. Having closed down and revived several formats, most retailers have realised they need to constantly experiment with them to stay afloat.

So we can clearly see that India’s organised retail industry, which has the coveted potential of nearly a billion plus customers with enough cash to spare, has so far claimed a number of players, small and large. These players expanded too soon based on mere speculations.

While these retail stores were expanding and accumulating debts they hoped that the middle class with disposable income would be ready in short time to support them.  Things did not turn out the way they had planned. India Incorporation failed to deliver and along with that came the global economic crisis. These firms ultimately paid the price by closing down their shutters. For instance Subhiksha had expanded to over 1600 stores country-wide entirely on debt. This was a blunder that it committed as it was counting on the rising customer demand which was only on papers.

Not only the growth stories are misleading, at the same time the country’s back-end is not developed and huge investments go into developing it.  The vital supply chain required for the retail networks are entirely missing. This leads to a huge inventory cost which the small retailers are unable to cope up with. Take for example, it is estimated that in the food retail business in India, the wastage due to lack of proper storage facility is staggering 40%. This entire situation is largely the result of the lack of proper policy framework from the government.

The Indian retailers like Future group , Reliance and others are backing FDI so that they can get investment and save themselves from the fate of Subhiksha , Koutons , Gini & Jony , Spkykar , Vishal Mega mart , Foodland super markets, Surya Group etc . We have more companies going into CDR – Corporate debt re-structuring post the closure of the financial year 2011 ( March 2012 ). Banks do not wish to announce the failures or NPA’s in this year.

Ideally , retail businesses should have been making money due to consumer demand but the fact remains that India’s income and growth story is limited only to 6-10 towns and impacts less than 10 % of India’s population

 SEZ’s in India

India adopted the concept of zones from as early as 1965. Kandla in Gujarat was the first Asian export processing zone till the advent of the modern SEZ’s as such zones are now known as. With the passing of the SEZ Act in 2005, it was hoped that the Chinese success story would be replicated in India. It was expected that investor’s confidence would be established in the Government’s commitment to a stable policy regime. The real aim was to generate greater economic activity and employment with the establishment of SEZ’s following the Chinese model of economic growth !

There were numerous applications from multiple sources with individuals, indigenous companies, foreign MNC’s all rushing to have a share in the pie. Sadly it was a short phenomenon. The initial excitement was over as the problems started cropping up. Today in the last two years, as many as 60 applications for SEZs have been withdrawn, while 35 developers have applied for de-notification, according to data by CB Richard Ellis (CBRE), the real estate consultants.

Till date, the government has approved 584 SEZs. There are 381 notified SEZs, of which 148 are operational. Of these 148, only 17 are multiproduct SEZs. The remaining ones are SEZs dealing in engineering, electronics, IT/ITeS, hardware, textiles, bio-technology and gems & jewellery.

So what exactly is wrong with the SEZ idea in India which paid its dividends in China, Poland and Philippines?

On the whole the SEZ idea in India seems to be very much the product of the irrational expectation which has been fueled by imagination.

Healthcare Companies :  Most of the healthcare companies are ‘managing profits’ and as i write , a major healthcare ( hospital ) chain and a pharmaceutical conglomerate is about to wind up in the next 3 months . Imagine a healthcare & hospital company winding up ?

So the Congress party has sold the India story purely on ‘Imaginative basis and on speculative data’ numbers , have no idea of what is fueling inflation and what will deliver growth ? With all sunrise sectors on a downslide , it is better to replace these ‘jokers’ and bring in people who can understand the economy and run it efficiently .

Based on the governments high-octane pitches for the India’s growth story , consulting companies have brought out reports supporting government announcements , and  business houses have approached investors or moved to stock market and raised money and have put up expansion plans . But the reality is that, India does not have a growth story with the current fundamentals being very weak and ‘Leaky’ social schemes are making the party rich and not the population !

Also,  that the current stand of the government to raise the tax issue with Vodafone is a clear proof of what i am writing . India is desperate for funds and behaving like a dictator reversing a five decade legislation for just 10,000 crore ( USD 2 billion ). Does it not show the lack of morality and desperation for funds ? Rest will become apparent in April – May-June Quarter !

Lastly , the financial deficit of the government proves the rest ; all is not well with the India ‘bubble’ story ! Tough times are ahead , if we don’t take immediate action !

Rajendra Pratap Gupta

Healthcare I Retail I Rural Economy I Public Policy

www.commonmansblog.com

Posted in Budget, Economy & Recession, FDI in retail, GDP, Global recession, Healthcare reform, Quota, Rajendra Pratap Gupta, Recession & Solution, Retail Sector, Technology, Uncategorized, US Economy and tagged , , , , , , , , , , , , , , , , , , , , , , | Leave a Comment
21 Dec 2011
2 Comments

Potato Politics and Commercial Airport in Rae Barielly !

Dear Rahul,

Last week you made a statement that , ‘ 50 grams of potato chip are sold for Rs. 10 , and that this is made from just half potato’ ! Correct ! But again , Rahul don’t forget that the foreign companies no lesser than Wal-Mart ( likes of Pepsico ) are selling these expensive potato chips made from half a potato . So, does it not make more sense to check the growth of MNC retail chains / companies in India, who are buying cheap potato but ‘profiteering’ by selling chips at Rs. 10 per packet and the poor farmer is losing his produce at a throw away price  ?

Also, I wish to draw your attention towards the fact that currently the farmers are paid Rs. 1 per KG. I cannot understand why will ‘Profit & balance sheet obsessed’ Retail chains pay more to these poor farmers !

Simply stating that the middlemen would be removed and so farmers will get more, is a fallacious statement and conveys a lack of your ignorance about the realities. I think your party and Maya ji are fighting in the ‘aerial warfare’ with no touch of realities on the ground

I can clearly see the trick in getting the farmer leader Ajit Singh into Congress. Clearly , he will help you pitch farmers in favor of FDI and also convert a few of them as voters . But these tactics might not work in the long run , hopefully there are millions like myself who know the reality of these old tricks of congress for vote bank politics  !

I read another news that Rae Bareilly will get a commercial airport

Let me enlighten you about the Awadh region where your dad , mom & yourself have fought & won elections for decades

The Awadh region once ruled by nawabs and taluqdars and known as granary of India because of its fertile Gangetic plain. The area has given prime ministers to the country – Indira Gandhi, Rajiv Gandhi, and Atal Bihari Vajpayee. But most districts are still backward.

Population | 3.654 Cr

Per Capita Income | Rs 13,150.81

Faizabad division | Faizabad, Ambedkar Nagar, Sultanpur, Chhatrapati Shahuji Maharaj Nagar, Barabanki

Devipatan division | Gonda, Balrampur, Shravasti, Bahraich

Kanpur division | Kanpur, Ramabai Nagar, Auraiya, Farrukkhabad, Kannauj, Etawah

Lucknow division | Lakhimpur, Lucknow, Sitapur, Hardoi, Unnao, Rae Bareli

Now here is an interesting fact : Purulia is better off than Rae Bareli and Amethi and this was quoted in this article of Business Standard & Mid-Day. http://www.mid-day.com/poll2009/2009/apr/270409-Purulia-is-better-than-Amethi-Left-tells-Rahul.htm 

Let me walk you through a planning commission report on the per capita domestic product , and the NDP per capita in your family’s constituency.

Net domestic product (total and per capita) 2006-7 as per planning commission, Government of India

 

  At Current Prices At Constant Prices 1999-2000
  Domestic Product (Total) Rs. in CR. Per Capita Domestic Product (Rs.) Domestic Product (Total) (Rs. in Cr.) Per Capita

Domestic Product (Rs.)
Rae Barielly 3288 10361 2489 7844
Sultanpur 3955 11168 3077 8687
         

Source:http://planning.up.nic.in/Annual%20Plan%202010-11%20for%20website/Volume%20-%20I%20(%20Part-II)/Chapter-6.prn.pdf

 So clearly, getting an airport in Rae Barielly is a stupidity of the highest order, and that too, when it is clear that the region is back ward and people can barely survive a year without good rains leave alone travelling by air ! Please read the per capita income and check out if the poor people of that district can even afford the air port taxes leave along the airfare !

 I have visited Amethi and met up with dozens of self-help groups that you have formed in Amethi, and let me tell you that, you are just ‘Using’ the emotions of these poor people for becoming a member of Lok Sabha from Amethi

 While I was travelling to Amethi, none else than your own people (close associates) have informed me that the worst road in India is between Rae Bareilly and Sultanpur. Do I write more!

 Learn from Mr. Vajpayee , who started the Golden Quadrilateral project for the Aam Aaadmi and your government is more interested in airports, so that you can fly directly to Amethi rather than taking the 2 hour road drive to Amethi via Lucknow . You are wasting the hard earned money of common men like myself , who earn by hard work and pay 1/3rd of our income as taxes to the government , and people like you go and throw it for things like building an airport at Rae Barielly !

By the way i could not understand that in the same week you talked about potato being sold at Rs.1 per KG and the other side an Airport in Rae Barielly ?

 Gandhi Dynasty has taken India back ward by at least 30 years , and we need to stop it soon.

 I also don’t understand what is your intent for the so-called ‘Food Security Bill’ and ‘Job Guarantee Bill’. You will give fixed income to people so that they do not have to work and then you guarantee them food ? So it means that people will not have to work and earn the food , and will get it free ? Where will the Rs. 5 lac crore come from for these schemes ?  Will these things take India forward or your party men who will get the ration shops to distribute ( read divert ) grains and sell them to the open market, and finally , the poor Aam Aadmi will be left stranded on the road !

 Wake up Rahul ! Time will never forgive your people, and the elections will decide your fate not this ‘aerial warfare’  .

Rajendra Pratap Gupta 

Healthcare I Retail I Rural Economy I Public Policy

www.commonmansblog.com

Posted in BPL Category, Economy & Recession, FDI in retail, GDP, Growth Numbers and tagged , , , , , , , , , , , , , , , , , | 2 Comments
06 Dec 2011

2011 – Year of Democratic Innovations

Year 2011 – Year of democratic innovations

 

It would be appropriate to call the year 2011, the “Year of Democracy & Democratic innovations”. Year 2011 witnessed the birth of an Idea, which will either take the democracies to a new high or a new low depending how the weapon is used. This year (2011) was certainly of political innovations driven by grass-roots and Internet, and has given one lasting lesson to politicians and rulers ‘ If you have a responsibility, behave responsibly’.

 

Year 2011 will pass as the most happening year in the history of politics and governance.  We saw how Julian Assange unmasked the United States of America using the power of net, and how the Arab Awakening started on the net and the decades old regimes fell, and How Anna Hazare used the power of media to force the government to accept its demands & commit to change. It is no ordinary feat using the ordinary and every day use mediums to bring about a lasting change. We saw many changes without large-scale wars and bloodshed. It is unbelievable, but it happened, and not just in India but across the World!

 

Back home, this year, we have seen how the fierce standoff between the Government and the ‘Social activists’ / ‘Civil Society Organizations’ moved the ‘Policy Paralysis’ to ‘Parliamentary paralysis’. For sure, It is clear that innovations are not just limited to science labs and companies, but even the small and big democracies are innovating and finding ways to be heard using the power of low-cost mediums and issues that affect the ‘Common Man’.  The ‘autocratic democracies’ have to learn to accept and function in accordance with the wishes of the people whom they are meant to serve

 

I have always believed that ‘Politicians’ once they acquire the ‘Power’ forget the basic philosophy of governance that ‘ Powers flows through them, and not from them’ and that, they are supposed to be ‘serving’ the people & not ‘Governing them’, using the power to transform lives rather than using their position for ‘I, ME  & MYSELF’

 

So what is in store for politicians and the civil society now?

 

It is clear that the public has a new weapon of mass destruction – Dissidence with Disobedience till things fall in place!

 

We have seen that the Indian Parliament did not function during the monsoon session due to various issues relating to scams and corruption, and now that FDI in retail has become a contentious issue and has brought the government to a halt within the parliament. The UPA government, which was earlier being haunted with ‘Policy Paralysis’, has now turned to ‘Parliamentary Paralysis’ for the nation. It is both good and bad for a democracy. As long as this ‘Tool’ is used for right reasons for the well-being of the masses, it will bring about positive change, and when it becomes a ‘Tool’ to pacify the ‘Ego’ of the opposition parties, this could be the worst weapon to bring down the democratic ethos of any nation. Since FDI, 2 G scam and Lok Pal bills have vast negative ramifications, and so the opposition and the ruling party will get ‘the benefit of doubt’ on this modus operandi, but if the opposition uses the same tool for each and every flimsy issue, then the public will directly answer during the elections. It is clearly being felt that, the public is getting enlightened, and watching the debate and taking a stand and backing it with ‘viral marketing’.  We will see the results much before 2014 and the Grand Finale in 2014.  It is time that those who have responsibility, must act responsibly to take this nation forward.  It goes without saying ‘ You can fool some people all the time, all people some time but not all people all the time’.

 

Rajendra Pratap Gupta 

Healthcare I Retail I Rural Economy I Public Policy

 

Posted in Economy & Recession, FDI in retail, GDP, Global recession, Growth Numbers, Rajendra Pratap Gupta, Recession & Solution | Leave a Comment
29 Nov 2011

How can congress manipulate politics – Read this .

 

Congress can still implement FDI.
Going by the AICC’s shrewd game , it is clear that DMK is pacified with Kanimozi getting bail ( by the way , what a coincidence !) , now Mamta can get her West Bengal’s loans waived off , so she will also toe the congress line on FDI in retail , and as always,  Mulayam and Maya are actors who are always reimbursed for their role
So , congress may still do with FDI in retail . But this time , more than 40 crore people are watching this policy move and are dead against FDI in retail , and  Congress might fail to have its way .
I was the author of the first draft of the BJP’s election manifesto for Lok Sabha elections in 2009, and so i am sure ,that we promised not to allow FDI in retail and to protect small retailers . We will keep our promise !
Fingers crossed !

 

Rajendra Pratap Gupta 

Healthcare I Retail I Rural Economy I Public Policy
Posted in FDI in retail and tagged , , , | Leave a Comment
29 Nov 2011

Big Question- Who wrote the FDI in Retail Policy ?

Quote in The Times of  India today:
‘Sources also expressed surprise at the fact that the minister’s statement to both Houses of Parliament did not mention that 30% of sourcing from micro and small enterprises could be from anywhere in the world and not India specific’.
Clearly , it is not something that the Government Officials can author ? The billion dollar question is ‘ Did Wal-Mart Executives write this FDI in retail document ?
Earlier , we all learned that Niira Radia decided the telecom minister port folio, and led the biggest scan in India’s history. Now is Wal-Mart scripting this biggest sell-off of India through FDI in retail ? We all fought the war of independence to stop the economic exploitation from the British Raj, are we not going back to pre-1947 days by privatizing the 350 billion dollar retail industry ? 10′s of billions of dollars would leave Indian economy for foreign shores once retail giants step in . Finally , we will have less money chasing more goods – Simple economics definition means ‘High Inflation’.
Congress leadership needs to answer this question ?
Rajendra Pratap Gupta 

Healthcare I Retail I Rural Economy I Public Policy
www.commonmansblog.com
Posted in FDI in retail and tagged , , , , | Leave a Comment
26 Nov 2011
1 Comment

FDI in retail – This is a harsh reality – Is FDI really a boon for India at this time ?

Government’s arguments for FDI in retail are a proof of the fact, that this government does not understand India, and looks at Indians from USA’s businessmen’s perspective. Congress government has become the biggest lobbyist for pursuing the business interest of nuclear & retail corporations from USA & Europe at the cost of India’s middle class

Today’s Economic Times (26th November 2011) headline ‘ Govt Sells Multi-Brand FDI with best bargains’ gives a list of reasons why the government is supporting, (rather pushing FDI ) in retail. Let me put the Common Man’s view and take on each of these arguments

1.     It will create 10 million jobs in the next 3 years

A) According to the CII report in 2007, ‘India will need 10 to 12 million skilled workers every year for the next five years to meet the growing demand from the support services and there is a need for strong intervention to ensure the availability of the workforce’. So is the government trying to say that it is only the retail chains that will create 10 million jobs in the next three years?

B) Let us examine how many jobs Wal-Mart created in America & how many jobs did Wal-Mart create in India for the past 3 years of operations both as a wholesaler and as a retailer ? How many jobs our Indian retailers like Future group, Aditya Birla retail and Reliance retail created in the past 3 years?  We will clearly see that they did not even create a million jobs!

C) Also, government does not talk how many Kirana stores will shut down in the next 5 years and how many homes will be denied of a source of income ?

D) Wal-Mart or for that matter any retailer works on the least number of workers per square feet (lean management structures ) ,and so it will kill the 50 Kirana stores thereby get at least 250 people out of jobs and then create 50 jobs per super market.  Is this factored in the statement? I am willing to prove this in the current retail scenario leave alone the scenario when the foreign retailers come in?

 2.     Several billion dollars of investment in retail

A) If retail is a great business, the government banks should give loans from domestic financial institutions and let the homegrown retailers grow and build scale and size and let the profits remain in India. Why should we give 51 % of the ownership to foreign players, as these people will sell to Indians and take the profits out of our country.  USA / Europe will solve their income and earnings problems and India will get into problems of high inflation and more volatile stock market. Also, Indian retailer being less than 50 % of their share in the retail will become servants to these MNC chains under the current 51 % FDI norms.

B) Why did the government not start with 26 % FDI in multi brand retail for the first five years? Why suddenly start with 51 %. Please justify?

C) Often it has been quoted that the foreign retailers will bring technical know how to Indian retail market and boost the economies of scale and productivity? Which technical know how is the government talking, it needs to explain? I have been a COO / Board member of a major fortune 20 company’s retail operations in India, and I can tell you that these foreign retailers only bring money and no other expertise! They work on high profits, highly automated environment and lean man power structures.  So government’s reason of the technical know how is fallacious and is showing that we Indians do not understand retail. Let us look inward and see our home-grown retailers like Future group and Aditya Birla retail .They are certainly growing . Government must bring out a detailed white paper on the so-called ‘Technical Know how’ these foreign retailers bring to Indian retail market?

D) With these billions of dollars coming in India, India’s real estate will become expensive thereby, contributing to keep the inflations levels high for the medium class not just for real estate but for all the sectors

E) Also, these billions of dollars are not charities to India or Indians . These are investments by retailers which follow a ROI ( return on investment concept ) for every dollar spent. So for sure , they people will invest in retail one dollar and take out 10 dollars from India over the next couple of years . Retail is mostly done on inventory management which is on credit from vendors . These retailers follow a credit cycle which ranges from 15 days to over month . So with a double-digit profit margin , these retailers will only be investing one time into infrastructure and then make money without investing at all ,as all the inventory is on a credit cycle . ‘Sell and pay’ is the mantra for these FMCG retailers ! Even the space which is rented by these retailers is leased to product companies for hefty display charges. These retailers charge a heavy fee for listing products in its store before selling .Our policy makers , wake up and understand the real dangerous game of FDI in retail and don’t get carried away by the billions of dollars of investment . It is not true . One time investment by these retailers will be a life long profit for their parent company’s home country

3) Farmers will get more than 12-15 % of the consumer price they get for fruits and vegetables

A)    In reality, farmers will never get a higher price but will be exploited by these MNC Chains  .In fact, these MNC retailers will push in for stringent quality checks and other prohibitively expensive conditions for these farmers thereby, forcing the poor Indian farmer out of his livelihood. Most of the retailers will take to contract farming, and thus the farmers will be reduced to being laborers in the hands of these MNC chains.

B)    The History of these MNC chains has shown the these chains are out to squeeze blood out of their vendors and farmers will certainly be vendors for these MNC chains and nothing else . Wal-Mart and other retailers are facing dozens of cases of exploitation and gender bias in developed country where the legal system is strong . Imagine what will happen in our country ?

4) Consumers will get producers at Cheaper Prices, as competition will bring down the prices

A)    Even without competition the prices will come down by a few paisas or may be a few rupees, but, all these chains will increase the MRP  (Maximum retail prices) of the products, and so the consumer will end up paying more than what s/he pays today. Take an example of the MNC pharma companies. Since there is a ceiling of price increase by 10 %, so every year the pharma companies increase the prices by 9-9.5 % and thereby, circumventing the price increase regulations.

B)    It is clear that the consumer is not a winner, no one pay’s from its pocket OR profits to the consumer. If there is a price increase on the input costs, the same is passed on to the as an increased MRP or the quantity is reduced for the same price. So the consumer’s pocket is always ripped apart by these retailers

 

5) 30 % mandatory sourcing from small-scale sector will help small industry

A)    This has not been a convincing argument, so we are trying to tell that a small company out of Varanasi will compete with HUL and win? Come on Dr.Manmohan Singh, are you trying to fool Indians? I understand that you studied at Oxford, doesn’t mean that rest of the Indians are going to get carried away with these statements

B)    Also, these MNC chains will put conditions that are either too stringent to be complied to or prohibitively expensive to be implemented by these SME’s, and so finally, these chains will find a reason to evade buying from these SME’s. Also, that the SME’s are not just limited to India, but across the world, so probably, Chinese SME’s would benefit more than Indian SME’s

C)    These retailers charge a heavy fee for listing products in its store before selling. How will SME’s afford that ? The fee currently for Indian retailers varies from few thousand to over a lac for products for companies . SME’s will never be able to benefit from these chains even if they are able sell to them, as they will pay for listing and then cry for the payment – which will depend on the vendor payment cycle varying for weeks to months and small vendors (SME’s ) cannot survive this big box retail game

6) 70 % of retail is in food items and these are mostly sourced locally

A) If 70 % of the retail is in food items and this is sourced locally, why allow 51 % of the profits to go out of India? So FDI should not have crossed more than 30 %!

B) Local Indian retailers (existing Kirana stores ) must be trained to deal in these food items and deliver better value for the country and its economy.

C) This argument of the government goes against its own policy. So whereas, 70 % of the products would be food items, 51 % profits from these categories would go out of our country, thereby, clearing pushing the inflation higher perpetually for the next couple of decades. As there will be less money in our country chasing more goods ( as money would have found its way to parent MNC)  – Simple economics Mr. Kaushik Basu!

 

7) Ikea already sourcing 30 % of inputs from India

A) So if Ikea is already sourcing 30 % inputs from India, let other chains also do the same before starting their shop in India.

B) If these MNC chains buy from India and sell in India and take 51% of the profits abroad, what is India’s gain? The government must come out clean on this?

8) Approval only after investors meet all conditions, including 50 % investment in back end

A) This statement of investment in backend is a foolish statement. Already 100 % FDI is allowed in wholesale, why justify it for retail and link it up? Let these retailers first invest in back-end for the first five years and next five years invest in front end

B) Government has FCI (Food corporation of India) godowns and what is the government doing for enhancing the efficiency of this biggest warehousing corporation – Can this FCI not  become the Cash and Carry for small retailers ? A drastic improvement in supply chain of FCI godowns can bring down the wastage of food grains by hundreds of tons if not thousands of tons. Please pursue the project of Mr.Atal Behari Vajpayee of Golden Quadrilateral and link up all the FCI godowns, and start a national Agriculture produce transport corporation to start weekly transport during the harvesting season from the farms to FCI and nearest towns. The farmers co-operative and IFFCO should manage this. With this, farmers will not only get good prices but the wastage will be reduced substantially. Why are you looking at FDI to solve this simple problem of inflation . This can not only solve the inflation problem but also improve productivity at all levels , create more jobs ( may be , millions of low & middle-income but high productivity jobs ) and reduce inflation .

C) Learn from ‘operation flood’ by AMUL and how it solved the shortage of milk problem of our country and created a world-class brand. See what M.S.Swaminathan did with ‘Green Revolution’ to increase the production of grains in our country. Please do not justify that foreign retailers will help you bring down inflation. Remember that ‘Inflation is reversible but FDI is not’ and do not sell our country to foreigners for a short-term gain of a few billion dollars to our economy. This is anyway not the dollars to our economy, but the investment of dollars to take back dollars. I am sure that all these MNC chains a ROI (return of investment) method of calculating the investment returns. So I wish to ask our government that what does the ‘retail FDI dollar’ bring to India, which Indian government cannot do with its own money?

9) Government will have the first right over procurement of farm produce

A) This statement has no value. Government has shown no concern for farmers except considering them as voters and leaving them at the mercy of rain gods.

Questions that the government must answer

  1. What has the government spent to train local Kirana stores in the past five years?  When yesterday only the government asked for Rs.56000 crore of the tax payers money despite a huge budget deficit, why did it not ask for even a Rs. 1000 crore for retailers training and up gradation?
  2. Why did the government not start with FDI in retail at 26 %? Why suddenly at 51 %? Has the government become a lobbyist for MNC chains?
  3. Has the government done its own independent studies for the impact of retail chains on Kirana stores?
  4. The biggest plank of allowing the FDI is that inflation will come down. So despite allowing FDI, if the inflation does not come down, will the government revoke FDI in retail? Does that rider appear in the CP (Condition Precedents) for allowing FDI in retail?
  5. Government needs to prove that FDI in retail can create million jobs every year. How and why, and which retailer will do that. All this must be put in the business case for allowing FDI? Why is government becoming the spokesperson for these MNC retail chains? What is the deal?
  6. Where and how much wills the retailers invest in back-end? This has not been specified?
  7. Why has the government not capped the retail margins of foreign retailers in India?
  8. See point 5 B, why have women self-help groups / handicrafts been excluded from being the beneficiaries of the retail entry
  9. Why are retailers not mandated to invest in retail training ?
  10. More questions to follow

Rajendra Pratap Gupta

Healthcare I Retail I Public Policy

Email:  office@rajendragupta.in , office.rajendra@gmail.com

Posted in BJP, Economy & Recession, FDI in retail, GDP, Uncategorized and tagged , , , , , , , , , , , , , , , , , , , , , , , , | 1 Comment
09 Jul 2011

Post Pone FDI in retail for another five years

Prime Minister Dr. Singh,

Yesterday , I attended the meeting of CAIT ( Confederation of all India Traders ), I felt really bad seeing the plight of the traders, and the hell they would be subjected to , should FDI be allowed in India at this point .

Over the last few months, you have rallied all associated departments and ministries to build a case for FDI in retail. I feel sad that you & your government have ignored the fact , that FDI in retail at this juncture will put a big question mark on the means of livelihoods of over a Crore traders in the country .

I have seen that you / your government has been saying that inflation will come down as Wal-Mart , Carrefour , Tesco’s of the world come to India ( Wal-Mart has already come in few years ago ! ).

Prime Minister , remember, that Inflation has not come down despite Wal-Mart being in India . Your government’s logic that supply chain will get strengthened and prices will fall is fallacious . FDI in retail is a wrong justification for strengthening the supply chain , as FDI in supply chain is already allowed, and a lot of wholesalers are already around and more can come in without needing FDI – Why are you fooling around Manmohan ji ? How low will you stoop now to push to agenda of foreigners !!

Even those who are operating Cash & Carry business , are issuing cards to individuals to buy from them, thereby , stabbing the small retailers . Shut down Cash & Carry immediately after a proper investigation . I go to Sam’s Club in the US ( For your information , Sam’s Club is Wal-Mart’s Cash & Carry Venture in the US). Anyone can buy a card for USD 40 and start buying from Sam’s Club. I have gone twice with my friends to Sam’s club and brought goods from the store , my friends are not retailers , but Indian professionals working in the US . So when these retailers do the same in India , what will we do ???

Your government has failed to understand the cause of inflation , and firstly , you said that recession caused inflation ; then recession got over but inflation did not come down. Then you said that irregular and deficient rainfalls are the cause of inflation. Last year , we had good rains and inflation still did not come down. Realizing that there was no answer with your US educated ( read brain washed ) consultants ( Rajan ,Montek, Kaushik & Sam ) , your government said that inflation was due to high growth and it would continue . Study our next door neighbor – China . They have had high growth with less than 5 % inflation !! All your predictions have failed !!

Also remember dear economist, that ‘inflation is reversible but FDI is not’ . What I mean to say is that , when BJP comes to power, it will bring down inflation , but if you permit FDI ( As your government is hell bent on it ) , we will not be able to reverse FDI . So think before -hand !! Don’t jump like the nuclear deal & do another fiasco !!

Sonia Ji is shouting aloud on NAC podium for poor people on one side, and on the other side , both of you have already done a deal with major international retailers , and are hell bent on cracking the back bone of small retailers by allowing FDI

Government has a flawed policy with regards to FDI, as you are saying that you will allow FDI in top 35 towns to start with. This goes contrary to strengthening the supply chain. If you really want to strengthen the supply chain then please ask this big giants to start retail in ‘C’ class towns and then come to B & A class towns !!

Your statement that farmers will get better value because of FDI in retail : Wal-Mart’s of the world are known for extracting even the ‘blood’ of suppliers !! Their labor policy record needs to be closely examined , and how many times they have been fined !

Also, Wal-Mart is failure in Japan ( social dumping & doubts about its quality ) , Korea ( Wal– Mart failed to understand local customers) , Brazil ( Lack of understanding about local culture ) & Germany ( due to cultural insensitivity ) .

I am producing an excerpt from a report

‘Walmartization does not travel well’ Clearly, neither Wal-Mart’s business concept nor its social dumping – the so-called Walmartization – work in developed economies with a social dimension. Many consumers shun the Bentonville giant and prefer to do their shopping in stores where they know that workers are treated correctly and with dignity. There is also more and more uneasiness and suspicion about many of the products sold. Squeezing the last drop from suppliers can hardly promote safety and quality. There is also a growing aversion against buying, consuming and using products which could well have been made under inhuman conditions. That the tide is fast turning against Wal-Mart at home has not gone unnoticed abroad. Consumers start to know that the retail giant denies its American workers their fundamental rights, and many of them vote with their legs, going to other stores if they have a choice. The poor business results in Germany, Korea and Japan should be taken seriously in Bentonville

Another report : This article appears in the November 21, 2003 issue of Executive Intelligence Review. Wal-Mart Collapses U.S. Cities and Towns by Richard Freeman

During the last 20 years, Wal-Mart has moved into communities and destroyed them, wiping out stores, slashing the tax base, and turning downtown areas into ghost-towns. This is accomplished through Wal-Mart’s policy of paying workers below subsistence wages, and importing goods that have been produced under slave-labor conditions overseas. Often, communities will even give Wal-Mart tax incentives, for the right to be destroyed. Wal-Mart both reflects, and is, a major driving force for America’s deadly implementation of the Imperial Rome model. Unable to produce physical goods to sustain its own existence, the United States, like Rome, sucks in imported goods from around the world, using, in this case, a dollar that is over-valued by 50-60%. America has been transformed from a producer to a consumer society.

I believe that Wal-Mart destroyed American Economy and now it is here to kill ours !! Also, since we know that Wal-Mart is a failure in four countries , please produce a report on those four countries .

Also, let us examine that how many small mom & pop stores have shut down with the advent of Wal-Mart in the United States ? Similar study we must do in China .

Let me also tell you why Biyani’s & Ambani’s of the world are wanting FDI ?

Let me ask these retailers one question ? If the retail trade is so good and profitable , why they have the problem in raising money , investing and growing their business – why do they need foreign investment ? The talk that these MNC retailers bring latest technology is also misleading , as Indian retailers are working in a different environment and all foreign CEO’s have been an utter failure so far in India . You can see the example of Reliance Retail ; How many CEO’s have been brought from outside India in the last four years ? I understand that recently a new CEO was hired from Wal-Mart China !! These traders are actually looking at exiting the business by selling their business to these multinationals to make a quick buck !! That’s the real reason they need FDI .

Once FDI comes , farmers will cry for a good deal and Wal-Mart would never give them a fair deal . On one side , farmers are forced to sell land and other side whatever is left with land & cultivation , they would be forced to sell to these MNC chains at a wafer thin margin .

Congress is a killer party for the poor !! Prime Minister Singh , where is your plan to upgrade the current Kirana stores ? Why are you not excited with their welfare . Give them FDI ( Finance from domestic institutions ) , and provide them training .

I call upon Shri Nitin Gadkari , President BJP to stand behind these standalone Kirana store and oppose FDI . We should post pone FDI for another five years and then revisit the issue. A massive peaceful agitation is called for to stop FDI in Retail for the next five years .

Mail is marked to Montek, Raj Jain of Wal-Mart , CAIT and all leading retailers & political parties in India

A Common Man

Rajendra Pratap Gupta

www.rajendragupta.wordpress.com

Posted in BJP, FDI in retail, Politics & Recession, Rajendra Pratap Gupta, Recession & Solution, Retail Sector, Uncategorized, US Economy and tagged , , , , , , , , , , , , | Leave a Comment
15 Jul 2010

Indian Pharmaceutical Industry is already controlled by US / Europe, and now it is Retail Sector’s turn – FDI round the corner

Dear Dr.Joshi,

Namaskaar,

I am sure that this finds you doing good.

Last  year i had detailed discussions with you on FDI and i sent you a note on not opening the retail sector to FDI. Till last year , you were the Chairman, Parliamentary Standing committee on commerce .

This year the issue is out again . It is shocking that UPA is even considering to open the Retail sector for FDI.  Just consider ;

Total retail market is Rs. 1.2 Lac crore. Isn’t that too tempting for recession hit economies like US/ Europe and U.K. to fight recession through markets abroad ? They cleverly call  us as an emerging / developing economy

To foreigners , this is a market but for us (Indians)  it is 40 % of our GDP.  You can expect that in the next few years , a good percentage of 40 % of our GDP will be in the hands of foreigners !!  . We have 15 million retailers , thereby directly employing at least 30 million people and indirectly 6 times more i.e. 90 million .

Only 4 % of our retailers have an area of 500 Sq. Ft.

Food constitute 70 % of our retail trade

The UPA’s discussion paper is a wrong start as it has by-passed the parliamentary standing committee’s report tabled in both houses in June 2009. Consisting of more than 40 Member of parliaments . The committee had taken into account the report submitted by ICRIER

British MP David Amess recently said that the Indian Government to tread”very carefully” if it opened up the multi-brand retail sector to FDI because the entry of companies like UK-based retailer Tesco would”literally change the fabric of life in India” by endangering small shops. Amess chairs the British All Party Parliamentary Group on Small Shops (APPGoSS).

The government is currently holding consultations on allowing companies such as US-based Wal-Mart, France’s Carrefour and Tesco to come in.  Critics have urged the government to insert safety clauses following protests from small independent retailers that potentially face closure.”Britain was a nation of small shopkeepers,” Amess.”All of that has changed and this is because of the supermarkets, led by Tesco. It is impossible for small shop keepers, who have so much to offer, to compete with the prices of the supermarkets”.

APPGoSS Secretary Bob Russell MP, added “the expansion of supermarkets in Britain has been to the serious detriment of small shops, there is no question about this”.

One in six small stores in Britain have gone out of business in the last decade, the group said.

Atul Patel, an Indian origin Briton who runs Pelican News, a small store in North West London. said his family-run business was now struggling to survive, with sales of meat, groceries and fresh fruit having dropped by at least a fifth  after Tesco opened a store hear his.

Largest Indian pharmaceutical companies like Ranbaxy and Nicholas Piramal have already changed hands and are no more with Indians . With the recent acquisition of Piramal with Abbott ,  MNC’s control more than 50 % of the Indian Pharmaceutical industry , and more acquisitions are likely to follow soon.

My personal belief is that, the when the large foreign retailers come in , the fight will not just be between large and small retailers but between  large and medium retailers . Small retailers will die for sure . Needless to mention , when the elephants fight , the grass ( small retailers ) gets trampled !!

Dr. Joshi , please take it up at the appropriate levels .

Recently , it was reported that acute poverty prevails in 8 Indian states ( 421 million people in Bihar , Chhattisgarh , Jharkhand , Madhya Pradesh, Orissa , Rajasthan , Uttar Pradesh and West Bengal which together account for more poor people than in the 26 poorest African nations combined ( 410 Million ), a new ‘multi dimensional’ measure of the global poverty said According to the MPI- Multidimensional Poverty Index , developed and applied by the Oxford Poverty and Human Development Initiative with UNDP support

Also, i hear that Economy is growing at approximately 8  %. I need to tell our Dr. Manmohan Singh, the economist that the literal meaning of Economy is “Community’s system of wealth creation” and not just growth of a few sectors, as is in the case of India and we call it Indian Economy ? So Indian “economy” is not growing , but a few sectors that are in a ‘few hands’ are growing !!

Dr.Joshi , you have profound knowledge of each and every aspect of history , culture and wealth creation and distribution , that is even acknowledged by Congress leaders in power.

Let’s work to change all this . I am hoping to meet you soon.

Thanks with best regards

Rajendra Pratap Gupta

Email : office@rajendragupta.in

Posted in Economy & Recession, FDI in retail, Global recession, Politics & Recession, Rajendra Pratap Gupta, Religion, Retail Sector, Terror strike and tagged , , , , , , , , | Leave a Comment

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