Wednesday, November 30, 2011

To FDI or not to FDI (in retail)?

With its decision on allowing 51% FDI in multi-brand retail, the cabinet has set loose the cat amongst the pigeons. Everyone, from those for it and those against it have been running helter-skelter to justify their stand. Now, I do not know if FDI in retail is a good option or not, because opinions of both sides have left me confused. But here are a few things that I would like to throw open to the readers of this blog. Readers are free to make their own decision on FDI in retail.
  1. The Prime Minister said that FDI in retail would bring in modern technology and investment in back-end storage and logistics. This would help prevent damage to produce and thereby give a better price to farmers. But such technology isn't exactly any rocket science, that cannot be developed locally. More so, with Indian retail firms being there for long, why haven't they been able to invest in such technologies? Was it reluctance on their part or did government policies prevent them from  making such large-scale investments? Moreover, storage and transportation of fresh produce requires massive investments in infrastructure and streamlining of procedures. E.g., good roads that can endure heavy traffic, transparency in functioning of various toll nakas and R.T.O. check points, a reliable supply of electricity in small towns and villages, where farms are located. Why wasn't such investment made before? If India can develop technologies to send a spacecraft to the moon, such things should definitely be simpler.
  2. Better prices of farmers and producers is also touted as another benefit. But then, if retailers were giving good prices to farmers, why is the US and EU continuously subsidising agricultural products? In effect, the taxpayers of the US and EU are collectively paying for the produce indirectly, when such money can be used for the benefit of the society at large.
  3. Before bringing in FDI in retail, what has been done by the government to reduce wastage of food produce due to poor logistics and/or storage facilities? Everybody (at least the government) knows that farmers have to compulsorily sell their produce at the mandis or nearest APMC. All the wholesalers in these mandis are generally affiliated to some political party or the other. Even the workers at these mandis have unions which are affiliated to a particular political party. The elections to the office of these mandis is hard fought by political parties and used to show case their control over the local politics. This makes it quite clear as to why have these mandis not modernised. They never feared competition, because they patronised all those who were in power. They use their muscle in the legislature to see to it that nothing forces them to make investments and reduce cash flow. The wholesalers in these mandis have been responsible for loss of produce as well as its inefficient handling, leading to unnaturally high prices. Even if the government changes this law and allows the farmers to sell the produce to someone who offers them the best price, it would help the farmers, without the need for FDI. I have a suspicion here. With most mandis being dominated by regional parties, is the Congress trying to strike at their base by weakening their clout through the mandis?
  4. While FDI in retail will generate jobs for many, how many would be lost? We need to consider the worst case scenarios in both cases, i.e. the minimum number of jobs that can be generated and the maximum that could be lost. Once we have that picture in front of us, then we can make an informed decision about whether there would be a positive employment or negative one.
  5. The Amul model of co-operative involvement has been extremely successful in Gujarat and areas where Amul is operational. This means that Amul definitely has a lot of expertise in the areas of logistics and food processing, storage, transportation, etc. Why wasn't Amul called upon to provide their expertise to other agricultural areas as well? And can't others learn from Amul about the intricacies of logistics, storage, etc.? What prevents such learning, apart from no fear of competition? (Thanks, Dwaipayan Dasgupta for pointing this out)
  6. Back in the early nineties, when the Indian economy was being liberalised, there was a group of people, basically owners of various companies, which was called the "Bombay Club". They lobbied with the government against liberalisation, stating that it would spell doom for Indian companies. But, the government went ahead and many of those belonging to the Bombay Club now have companies which are successfully competing with foreign giants and giving them a run for their money. Why? Because these companies were left with no choice, but to adapt the global standards. Will the similar analogy hold for the current retailers and wholesalers?
  7. Despite the presence of many Indian retail giants such as Reliance Fresh, Big Bazaar, More, etc. my mother still prefers buying wheat and rice from her trusted aadatiya. At home, we still get our flour ground from the neighbourhood flour mill. And our family still buys fruits and vegetables from the vendor on the street or in the mandi. How difficult would it be for the big retailers to change this mind-set of the Indian consumer? Remember, Reliance Fresh, with perhaps the deepest pockets amongst the Indian retail giants, hasn't been able to shave off too much business from the small retailers.
  8. Can we afford to become a country, where people drive 10-15 km (one way), just to get their weekly/fortnightly supplies? This, at a time when petrol prices are going through the roof with every passing day! The small retailer saves us a lot of fuel when we walk down to his shop and buy stuff from there. So, will the saving on food prices be enough to compensate for this long drive?
  9. They say, a picture is worth a thousand words. I saw this picture at the Rumtek monastery near Gangtok. We need to learn a lot from this picture. It perhaps sums up the fact that we need to take a holistic approach on the issue of FDI in retail and not just look at it being able to provide more money to farmers and cost less to end consumers!!
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Thursday, November 24, 2011

The disadvantages of Big Brand retail shops

No, I do not intend to make a socialist case here, which is best left to political parties and activists. Here, I intend to spell the disadvantages that big brand retail shops have for me as a consumer. This is in the back-drop of the Indian government approving 51% foreign direct investment in multi-brand retail or hypermarts, as they are known in the west. This will bring in the big guys like Wal-Mart, Carrefour, etc. The benefits are being touted as big for consumers. They will bring in money, their expertise with supply chain management, etc. to sell goods to consumers at the lowest prices.

But for this, they need infrastructure, which the government would have to provide. Large warehouses would necessitate a smooth supply of electricity, well connected roadways to connect the warehouses to manufacturing centres and the stores, etc. This is woefully missing in India, where outside big cities, a minimum 6-8 hours of load-shedding is considered normal. The success of such retail firms relies big time on the availability of such first class infrastructure. But, whether they succeed or not, they have many disadvantages for consumers.

We may not realise this, but in the quest for selling things at cheaper rates to us, these retail outlets rely more on volumes of business, compared to per unit margins. So, the brand that sells most is the one they will stock. Of course, there are a number of subtle tricks they use to entice us into buying certain brands or products, but then, that is a completely different topic. So, if you like a particular brand and fragrance of incense sticks, you might not find it in the supermarket, because they do not get good volumes on it. And you are stuck to buying from the ones available in the store. So, you tend to lose your favourite brands, if they do not fit in the strategy of the supermarket. The small shopkeeper, though, will keep a fairly diverse number of products. Smaller quantities of the less popular ones may be stocked, but nevertheless, you have a fairly high chance of finding your choice there, than the supermarket.

If a certain product is out-of-stock in the supermarket, you have no way of knowing when it will arrive. The mom-and-pop shopkeeper around the corner, will not only give you an idea of when the product will arrive but also keep it aside for you, once it is in. This personalisation of service is out of question for supermarkets! Their business model just does not have this feature.

Thirdly, the supermarkets stock only big sized products. E.g. shampoos in large bottles, toothpastes are available only in 400 gm. size or detergents in min. 1 kg stocks or buy-3-get-4th-free soaps and many more such things. A very huge number of India's people live on frugal income. For them, to spend Rs. 100 (for a shampoo) in one go is extremely difficult. That is why most of India's FMCG manufacturers have come up with small sized packs (sachets for shampoos, detergents, 50 gm. toothpastes, etc.) which cost very less and are affordable to that population. Such small sizes are not stocked by the supermarkets, as the margin is too low and their rate of sale unpredictable to justify the efforts required to stock them. So, (even if you have a high salaried job but) if you live alone, you won't be able to purchase these things. If staying alone, I wouldn't want to buy a pack of 4 soaps and be stuck with them for 6 odd months. I would rather buy a single cake of soap, which would last for well over a month and be free to choose a different soap every time. Plus, I would be left with liquid cash, free to spend it as I like, instead of being tied up in three soap cakes, which would be useful only after a month.

Such mass stocking of products also hampers the variety available and this is especially visible in the clothing sections. They will not stock premium products. E.g., here in Edmonton, people advise to get winter jackets from special shops, not from Walmart, as it doesn't stock those. These supermarkets won't stock out-of-season stuff too. E.g. no chappals or floaters are available in the supermarkets during winter. For that, you have to look out in the footwear shops only. 

This is a very simplistic analysis of what would happen to us as consumers, if big supermarkets are allowed to dominate the retail business scene. Most of it is my personal experience. In India, there is a certain social aspect associated with shopping, which will not be available in supermarkets. The shopkeeper and the shop is where the local news is exchanged. Moreover, the personal relation developed with the shopkeeper help us in many other ways. His/her network helps us access various other services. E.g., some of his relative or acquaintance might be running a travel agency, from where we would be able to rent a car. Or contract a plumber's services at discounted rates. These informal channels will not be available with supermarkets. Economic and social analyses tend to indicate contrary views, but as a consumer, will we get all that we want? I have my doubts. We might end up getting what the supermarket wants to sell to us and when they want to sell it. As consumers, if we would like to have wider choices, I think supermarkets should not have a free run in the Indian economy.
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Friday, November 11, 2011

How dumb-witted can articles get?

After having spent a wonderful holiday, I was browsing through rediff and came across this news article titled, "Why IAF does NOT need either Eurofighter or Rafale?", written by Ajai Shukla. Apparently, he hasn't listed his credentials while writing this article. Here is what he says and also why that is wrong to a great extent.

He says, Eurofighter and Rafale are in trouble, because they don't have too many orders from their partner customers. The British RAF and German Luftwaffe have scaled down their orders for the Eurofighter. His inference: There's got to be some problem with the Eurofighter. But then, he conveniently forgets that Britain has just introduced massive cuts in its defence budgets and so has Germany done that. The reasons for this are best known to them, but then with budget cuts, one of the things they chopped off, amongst many others, were orders of new fighter aircraft. Same goes for the Rafale, he says, which hasn't a single customer other than the French air force, which too has reduced the number of aircraft ordered. So, to conclude, one reason India shouldn't buy the Eurofigther or Rafale is that they do not have enough customers!!

Next, he says, with China having test-flown the J-20, its first fifth generation aircraft, India would be left with outdated aircraft. And so, he claims that India is wasting money on the Gen-4+ aircraft. Operational clearance for the J-20 is almost 10 years away. Once it receives that, it would be another 5-6 years before squadrons of the J-20 are ready. In the meanwhile, India to is collaborating with Russia. The Sukhoi PAK FA, which is the basis for the Gen-5 fighter has already done three test flights. So, if this project proceeds smoothly, India too can have its won Gen-5 aircraft. In the meanwhile, we need to replace the aging MIG 21s.

Third, he says, Japan, South Korea and Singapore are investing in the F-35, which is a Gen-5 air craft manufactured by Lockheed Martin. He says that Lockheed Martin and the US government have signalled that clearances for selling the F-35 would be granted expeditiously. But then, how wise is it to depend on the US for our air craft? Particularly, when it is known that the US does not allow complete transfer of technology and also ends up keeping crucial technology information with itself. This would mean that we would be tied to the whims and fancies of the US, once the contracts have been signed. And if the US Congress or Senate passes a bill restricting the transfer of crucial technology to F-35 in the Indian Air Force, where are we supposed to go?

To draw conclusions, this gentleman says that India shouldn't be purchasing the Eurofighter or Rafale for the following reasons:
  1. The Eurofighter and Rafale haven't attracted enough customers. Doesn't matter if the Eurofighter has 5 customers currently on its role. Rafale, unfortunately has only the French Air Force as its customer.
  2. Since China has tested a FGFA, we shouldn't order Gen-4+ aircraft. Never mind that we have a FGFA programme going on with Russia, which should show some results by 2017. 
  3. Since the US government has indicated that the F-35 sale to India would be expeditiously cleared, we should go for it. And since Japan, South Korea and Singapore are also investing in the F-35 we should buy it from the US. Never mind, the US habbit of keeping a tight leash on crucial technology and never committing to full technology transfer.
Could articles relating to crucial matters such as the country's defence have so shallow reasoning? And could they get dumber than this?
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Wednesday, November 02, 2011

Team Anna has to be like Caesar's wife

 That the government would strike back at Team Anna members was a forgone conclusion when the anti-corruption movement gathered steam. And especially after Anna Hazare's super successful fast in Delhi. The government, and especially the Congress, feels embarrassed and lame as a perception was built that Team Anna brought the government to its knees and that without them, the government would have never passed a strong Lokpal bill.

Moreover, Anna Hazare and his team members were trying to take every opportunity to strike at the government. With the people supporting them and having created a favourable environment for themselves, Team Anna had tasted its success in the limelight. The Congress had to do something about it and show them, who's the boss. The Congress had a perception that it was cornered. And it decided to strike back with every weapon possible. Remember the Hindi idiom डूबते हुए को तिनके का सहारा. 

The first target was Anna Hazare himself. Digvijay Singh, who is inflicted by a perpetual foot-in-the-mouth disease constantly tried to prove that the anti-corruption movement is nothing but a front for the Rashtriya Swayamsevak Sangh (RSS). And he used very lame evidences, such as RSS chief's letter of support to justify his statements. However, the people are reluctant to believe this. Even if RSS was with Anna Hazare on the issue of corruption, people will not mind because they are heavily affected by corruption and would want to see it finished once and for all.

The second case, which was presented was against Arvind Kejriwal. The RTI activist had applied for voluntary retirement from his services and perhaps left the job. The IT department, which was his former employer, refused to accept his application on account of some bond being broken by Kejriwal. The question is, why did the IT department take so long to give its decision. Moreover, how was Kejriwal  so careless in not realising that he hadn't fulfilled the conditions for retirement? After that, he first made a statement that he had not broken any bond. Then, after a few days, he said he will take a loan from a friend to repay the claims made by his department so that he can be released from service. These flip-flops strengthen the notion that he indeed was involved in procedural lapses and his employer was correct in dismissing his application.

And Kiran Bedi takes the cake of all. This was with evidence. She claimed business class air-fare for travelling to deliver talks, while she actually travelled economy class, whose fare too was discounted for her as she was a gallantry medal winner. If she had requested her hosts (some of which were NGOs) to pay her business class fare and she would divert the excess amount to the NGO, then it would have been completely acceptable. After all, the hosts had a choice in saying whether their money should be used in such a manner. Moreover, she could have requested the hosts to give the excess fare as donation to her NGO, which would have also resulted in further tax benefit for the hosts. But by not doing this, she has damaged her credibility to a certain extent. Although she says, there was no mala fide intent in claiming excess fare, as it was her entitlement, she is not supposed to submit false bills to claim the fare. Remember, those NGOs are many times funded by the government, through taxpayers' money and also through donations that individuals make out of their hard earned money. Bedi has no right to claim that money through submission of inflated bills.

Reputation is like glassware. One crack and it is almost impossible to restore it. Integrity of the character is what made the people of India place their faith in Team Anna. Moreover, the media has placed them on a high pedestal, which the people view as worthy for only those with an impeccable character. Team Anna, therefore, has to be like Caesar's wife- above suspicion. Caesar divorced his wife, Pompeia, just because she was suspected of having an affair with Clodius. He did this to indicate that only a woman who is above any kind of suspicion is fit to be his wife. Will Anna Hazare become Julius Caesar? Strong character itself can earn you a place in history.
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