Industrial Economist - Jan 3, 2012
Bharti has a retail venture with WalMart tailor-made for the India market. In a free-wheeling interview Rajan Mittal , Vice Chairman talks about the what and why of FDI in retail and of how it can change the face of India.
INDUSTRIAL ECONOMIST (IE) : What are the advantages of getting in FDI into the country?
RAJAN MITTAL (RM) : Allowing FDI in front-end retail has many advantages. It would lead to massive investment in building supply chain infrastructure by companies. Then, there will be elimination of waste which will help decrease food inflation. Also it would create thousands of quality jobs for youth that would provide sustainable employment and financial independence. Growth of SMEs and creation of India as an export hub to mature international retail markets would be a bonus. And finally, higher price realisation for farmers when they sell directly to retail companies aside of better quality and cheaper produce to customers.
IE: The arrival of giants such like Wal-Mart is expected to push the prices down and lower inflation. Your take?
RM: One of the biggest challenges that the Indian retail industry faces is the lack of an efficient supply chain which subsequently leads to loss of about 40 per cent of fresh produce. Opening FDI in multi-brand retail will bring in the expertise, experience and resources of foreign retailers. A major beneficiary of back-end investments would be farmers who will not only gain substantially through agricultural best-practices of international retail companies, but also get better remuneration. Investments in supply chain and stores would generate huge employment opportunities for rural and urban youth. An efficient supply chain will decrease inflation and thereby help people save money.
IE: Isn’t this also the biggest issue since predatory pricing is what people fear would eliminate the kirana shops?
RM: The fear is baseless. In India we have laws and the competition commissions to protect the interest of all stakeholders. Also one needs to note that the case of predatory pricing works in markets with high entry barriers, which is not the case in India. Government and third party research as also our experience drawn from China and Brazil (both BRIC countries) have shown that there is no merit in these fears and both organised and un-organised retail will co-exist in India.
IE: Big retail chains are criticised in the West for creating a virtual monopoly and thus controlling the entire supply chain. Would this be the same here?
RM: Our endeavour is to work with and develop local suppliers and create local beneficiaries along the supply chain. This is where the global experience, expertise and best practices of our partner , Wal-Mart comes into play. We will work with the existing supply chain infrastructure and helping make it more efficient. We will invest in setting up an efficient supply chain that helps in maximising value for farmers and manufacturers on the one end and retailers on the other. The objective is to cut the waste, not the middlemen who can play a very important part in the entire supply chain. Thus, we build on sustaining both forward and backward linkages to our business model.
IE: Shouldn’t we be adopting an India-centric retail model instead of copying the West?
RM: Our retail venture with Wal-Mart is specifically created for the Indian market. Our wholesale cash-and-carry venture, Bharti Walmart supports farmers and small manufacturers who have limited infrastructure and distribution strength and the supply chain enables minimum wastage, particularly of fresh foods and vegetables.
In India, over the last two years we have undertaken several initiatives for the benefit of our myriad stakeholders – small retailers, farmers, suppliers and community. Bharti Walmart has devised an innovative kirana model, “My Kirana” that is tailored for kirana stores to provide them training and insights into areas such as assortment planning, hygiene, in-store displays, inventory management, value added services, etc. We have also initiated the Direct Farm Programme in partnership with small and marginal farmers in Punjab, where we have shared best practices with them to improve the quality and quantity of their yield.
IE: Is the current policy in place good enough for us to insulate us from the fears of the big chains?
RM: Yes. The current policy mandates a minimum investment of $100 million with at least half going towards back end infrastructure including cold chains, refrigerated transportation, and logistics. Further the stipulated mandatory of 30 per cent sourcing from small industry, will encourage local value addition and result in a synergic relationship between the small retailer and the large retail chains.
From an industry perspective, we have always stated that allowing FDI in multibrand retail in India is a step in the right direction. India can develop its own model based on its own realities towards modernization and development of organised retail in India. It will bring immense benefits across the value chain. Already, Bharti Walmart’s Cash & Carry venture sources around 90 per cent fresh produce locally from thousands of farmers as well as other merchandise from local manufacturers, thereby adding to the local economy’s growth and delivering immense value benefit to its customers such as kirana stores.
IE: What is your present set up in the retail space?
RM: Bharti Walmart Private Limited is a joint venture between Bharti Enterprises, one of India’s leading business groups with interests in telecom, agri-business, insurance and retail and Wal-mart, the world’s leading retailer, renowned for its efficiency and expertise in logistics, supply chain management and sourcing. The joint venture is establishing wholesale cash-and-carry and back-end supply chain management operations in line with Government of India guidelines. Under the agreement, Bharti and Wal-Mart hold 50:50 stake in Bharti Walmart Private Limited.
IE: What are your plans in the retail sector going forward?
RM: As part of our plans to provide a world-class retailing experience to consumers across India, we have planned an investment of $ US 2 billion to 2.5 billion by 2015. We have plans to have a pan-India operations and are looking at approximately 10 million square feet of retail experience across all cities in India with a population of over one million. Bharti Retail has already opened over 165 Easyday, Easyday Market and Easyday Hyper Retail Stores and is growing its footprint rapidly across the country. With Wal-Mart we have already opened 14 Cash & Carry stores and we plan to open 16 stores and employ around 4000 people by end of 2011. Going forward we aim to open additional 115 wholesale cash-and-carry and over 660 retail stores in India during the next five years which will create about 50,000 jobs in the next five years and help create a pipeline of skilled retail workers by training 40,000 students through our programme.
This interview can also be viewed at http://www.industrialeconomist.com/page.php?page=18&&cid=200