Tuesday, 16 October 2012

Welcome to FDI in Retail

Till 2011, Foreign Direct Investment (FDI) in Single Brand retail in India was limited to 51%.Now as per the recent declaration from the Indian Government, the limit is extended up to 100%.Similarly in multi-brand Retail the limit is extended up to 51%.The Single brand Retailers who wants to expand their business with more than 51% owner ship have to procure at least 30% of value of goods from India, preferably from medium and small enterprises, villages and cottage industries, artisans, craftsman in all sectors.
Similarly in multi-brand Retail:
§  The minimum limit for FDI in multi-brand retail sector will be 100 million $.
§  Super market will be allowed in only those cities whose population is more than one million.
§  At least 50% of the overall investment will be made on back-end infrastructure.
§  At least 30% of the goods and product purchased must be procured from local companies and industries.

Now the question which comes in the mind of everyone is what is the need of allowing FDI in retail at this point of time and how these restrictions are going to help us in the near future? For this let’s start finding the possible impacts which can be caused by big retailers in India by looking at the footprints of big retailers like Wal-Mart across the globe.

Economic impacts

Impacts on consumers

The   multi-brand retailers like Wal-Mart, Tesco are known for their streamlined supply chain. The efficiency with which the big retailers connects to producers and reaches consumers allows it to sell the goods far below the prices that other competing retailers and shopkeepers are offering. Apart from selling at lower price it also provides much wider varieties of product to choose from. This is particularly true for supercenters that sell product ranging from groceries to hardware to optical. Lower prices and availability of products in one location indeed gives direct economic benefits to consumers. Consumers will definitely be in the happy condition from the presence of multi-brand retailers like Wal-Mart.

Impacts on existing retailers

The Wal-Mart ability to sell at cheaper price as compare to existing retailers definitely pose a threat to their existence. There is no doubt that some of these existing small retailers will be forced out of business when a new shopping centre opens its doors for the business. Other retailers will be forced to downsize their operations as their customer segment declines. There are some businesses offering goods and services that are not sold by Wal-Mart are likely to have a positive impact because of the greater incidence of walk-in shoppers. Despite this overall we can say the presence of Wal-Mart will have a worsening impact on the wellbeing of small retailers and Kirana shops.

Impact on revenue because of sales and property Tax

The big retailers like Wall-Mart, Tesco, and IKEA can be major revenue generator for the state or place, they are located. This revenue is in the form of Sales tax and property revenue tax. This is surely going to help in the fiscal well-being of the government in the city or town where these big retailers are located. However we should not forget the loss of sales revenue caused by the downsizing of small retailers because of the presence of big retailers. We also need to consider additional costs that the local government must assume in providing new public services to these big giants. Apart from these, as per govt regulation- At least 50% of total investment will be made on back-end infrastructure.
Therefore foreign companies will invest huge capital in India. As a result, refrigeration technology, infrastructure facilities, transportation, etc. will be re innovated. That will lead to low-inflation rate.

 The sales tax depends on the price of quantity which is being sold.  The ability of big retailers to sell things cheaper as comparison to small and medium size retailers shift customer base from these small retailers to big retailers where apart from lower prices customer finds  larger variety of goods. In a store like Wal-Mart people gets things cheaper and also they are motivated for purchasing more goods by using different attractive schemes from retailers. This shift determines the net sales tax revenue generated. Lower the shift lower the revenue generated. This is because a customer buying a good from wall mart is paying less tax as compare to same customer buying from kirana shop. But in case of larger shift(which is likely to happen) of the customer base certainly people are paying less tax but as they are motivated to purchase more thus overall sales tax revenue increases.

Impacts on employment and trade deficit

When we try to look at the impact on employment because of the coming of big retailers, the first thing which comes in the mind is the disposition of small and medium retailers which will surely not be able to compete with the price and variety, the big retailers provide. This is indeed true but the question is -Is this the only impact?
The answer is definitely NO. Let’s try to first understand the present economic condition of India.
The International Monetary Fund (IMF) survey of global economy has found that:
§  India’s government debt is found to be highest at 67.57% of its GDP, followed by the Brazilian government debt at 65.09%. On the other side, debt levels in Russia and China are comfortably fixed at around 8.37% and 22.03% respectively.
§  The exports from India reduced for the fifth straight month in September while imports rose, pushing up the trade deficit to an 11 month high of 18.1billion $.Exports decreased 10.8% from a year ago to 23.7 billion $ while import increased 5.1% to 41.8 billion$. Exports have decreased sharply this fiscal due to reducing demand from west, a major market for Indian goods and other markets like Korea and Japan. The sectors affected most include petroleum products, engineering goods, gems, jewellery, drugs and readymade garments.
Overall we can say our trade deficit is increasing year after year. The manufacturing sector is a major contributor for the existing trade deficit. The information above indicates that we are continuously losing our edge on manufacturing sector because of the presence of cheaper Chinese goods. This might have a serious implication on the employment condition in India. Now let’s see how big retailers widens this import export gap particularly in manufacturing sector  in countries like India whose markets are  already flooding up with cheaper goods of China which ultimately leads to unemployment.

Let’s consider an example of Wal-Mart, started its business in China. The total value of the goods and services traded between US and China is $539 billion in 2011.Exports totalled $129 billion; Imports totalled $411 billion. The US goods and services trade deficit with China is $282 billion. China is currently the largest supplier of goods for US. The value of US goods imports from china is $399.3 billion in 2011, 9.4% increase from 2010, and up 299% since 2000.The major import categories in 2011 were Electrical machinery, Machinery, Toys and Sports Equipment, Furniture and Bedding, and Footwear.
As per the report of Economic Policy Institute, The United States is accumulating foreign debt and losing its expertise in export, and the growing trade deficit with China has been a major contributor to the employment crisis in U.S. particularly in manufacturing sector. Between 2001 and 2011, the trade deficit with China displaced more than 2.7 million U.S. jobs, 76.9 percent of which were in manufacturing sector.

Some critics say China has achieved its rapidly growing trade surpluses by devaluing of its currency artificially and thereby lowering the cost of its exports to the other countries. They have used various tactics like repressing the labour rights, suppressing their wages, subsidizing their products and thus making their product cheaper. China thus gives a conducive environment to big retailers like Wal-Mart to increase their profits while exporting from China and selling it across the globe.
We are nowhere different from America in this case whose manufacturing sector is struggling because of the presence of cheaper Chinese goods. We need to reduce the government debt and at the same time we need to decrease the trade deficit to improve the employment condition in India. To reduce the debt we need serious reforms which can inject money in to our market. For this allowing FDI in retail is not at all a bad option. This will indeed inject surplus money in to Indian market. But then question comes how to reduce the trade deficit.
The answer is definitely ‘30% rule
The rule says:
Atleast 30% of their goods and product must be procured from local source.
The rule is definitely the trump card thrown by GOI considering Indian framework and priorities in mind. This might help in reducing the trade deficit and at the same point small enterprises producing intermediary goods and ancillary items will benefit.
This 30% rule will help in balancing the trade deficit caused because of downsizing of manufacturing sector. As the retailers who wants to expand their business must procure 30% of their goods from local companies and industries, will help small retailers and dealers to sustain their profits and also it will provide new market opportunities to middlemen, small enterprises, local companies and industries.
. Some 20-40% of all fruits and vegetables grown in the country go waste due to poor storage, transportation and handling infrastructure. The huge advantage we could see because of FDI with 30% local sourcing condition is the efficiency in supply chain that foreign retailers can bring, which will provide the huge opportunity in agriculture sector. Exports will boost agriculture sector. If large retailers, whether domestic or foreign, directly source through domestic suppliers, realisations will go up for the local sources, consumers will have to pay less and the retailers will get higher margins.

Saturday, 8 September 2012

Chat with an atheist

Manoj Pratap Singh, teacher by profession, atheist by belief-not purely,  talking to one of his student Prashant. Prashant is non atheist and is having a firm belief on God.  

Manoj :  Why do you believe God is there?
Prashant politely replied asking Sir why do you think God is not there?.
Manoj :  I never feel like anything supernatural happening. Whatever happening is ...I mean nothing unusual.I tried several times to connect to God but no reply from other side.
Prashant : Same reason  because I find everything unusual I believe God is there and is present everywhere. Confused?  I will explain you.
                Sir you are a very good teacher. You teach so well. You are a government employee. If at all you don’t put the extra effort to teach us  or guide us there will be no harm to you. Right ?
Manoj : Yes I agree.
Prashant : Have u ever thought what is motivating you to do something good for us?
Manoj : This gives me inner satisfaction.
Prashant : Here is the point- doing something good for us is making you happy. What does it mean?
Manoj :I don’t know.
Prashant :  It means some or other way we are all internally connected by some sort of bond. Because of this bond doing good for others is making  you happy. Finally we all want happiness. Money, Sensual pleasure etc are all ways, we think in order to find the true happiness.

Manoj  :Okie agree ! Then why people do harm to others? What motivtes them ?
Prashant : Idea originates from two sources one is soul and other is mind. Practicing your daily life you make yourself habituated of listening mostly either of the two. For example: We all think we should wake up early. You will definitely have a break in your sleep in morning. At this stage I am sure you have experienced that you know waking up at this time is good for me. But most of the time we listen to our mind which will ask for some more sleep. This is how we make our self habituated of listening to our senses rather than the soul.
Now the question you asked why people do harm to others.
When you plan something like you decided to wake up early but it does not happen. You will feel guilt within you. Same way   people do harm to others listening mostly to their senses not by their soul. This is universal truth that after committing the act they will feel guilt for themselves. Brainwashing is one of the techniques where people are motivated for sensual pleasure or they are set to believe that they are serving something higher purpose.
Manoj  : Higher purpose means?
Prashant  : For example take the example of Arjun in Mahabharat. He faught believing that he is serving the royal command and that’s why he killed the kauravas.
Manoj  : This is really great  son !
 Shall i ask one more question?
Prashant  : Yeah sure. Go ahead I will try to answer if I know.
Manoj  : You worship idols. What is the reason for worshipping the non living thing?
Prashant smiled and asked- Sir do you have wallet ?
Manoj  : Yes !
Prashant : Can you please show me.
Manoj : Yeah sure !
Sir Why have u kept your wife’s photo in your wallet?
Manoj:  Because I love her.
Prashant : Thats the reason sir. We always want to see those people near us, whom we love. Not a second we want to go away from them.
And therefore I worship idol because it gives me a feeling that I am near to him and because
I love him.

God is to love! Not to be scared off!

Monday, 9 July 2012

A visit to Hamukhedi and sawari of lord mahakaleshwar.

As I am waiting for my new inning to start, time is passing enjoying nice food and having boundless sleep. Waked up at 10 O'Clock, thinking what will be the plan today, I decided to have a visit to the BIJASAN MATA temple .Approximately at around 11:30,  reached the temple. This is a takery  which is situated in gram Hamukhedi near Ujjain on Dewas road. On top approximately 1000ft above ground , there is a temple of Bijasan Mata. That is also a sort of picnic spot where people used to come from all over the country. We can have a nice aerial view of Ujjain from the temple. The best thing about the temple I liked is the huge  and marvelous statue of LION sitting in front of maa Bijasan. Lion was  looking extremely powerful and energetic.We can definitely feel the nice and powerful aura surrounding us in the temple. Please find some beautiful pics of this  temple, I have taken.

At 3 o clock I came back to home, had my lunch and started watching my favorite TV serial ‘Tarak Mehta ka ootlah chashmah’. While watching the television , my mom came, reminding that today is the first Monday of the month ‘Saavan’ and I have to go to Mahakaaleshwar sawari .I said oh….…………………..
I felt irritated thinking again I have to go and join that huge crowd but anyway I can’t say anything to mom and finally said ‘ok’.

Mahakal ki Sawari is the special processions that are taken out in the Shravan or Sawan month in the Ujjain Mahakal Temple dedicated to Hindu God Shiva. These special rituals are held on the Mondays or Somwar in Shravan Mahina. Mahakal ki Sawari 2012 dates are July 9, 16, 23,  30. The Shravan month in 2012 as per traditional calendars followed in North India begins on July 4 and ends on August 2.
Special processions of the murti of Lord Shiva are held on all Mondays in the surroundings of the Ujjain Mahakal Temple. Thousands of people arrive to witness this unique ritual.This is also the period when the Kanwar Yatra takes place.

At around 4 o clock I started  for the temple. I already knew that there will be a huge crowd from the common path we used to go by, frequently so I decided to take longer and separate root via a bridge. I decided to go to Ram ghat where the sawari of Lord Shiva will come at 5 o clock. I was just two km away from our destination and got to know because of the huge crowd , vehicles were not allowed after that point. Didn’t have any option I parked my bike there itself and started walking for the ‘Ram ghat’.

Suddenly there started heavy raining. I was completely wet. Actually I liked it wholeheartedly. As I feared-involving myself in a huge crowd in this hot summer. That  heavy rain definitely provided a big relief. I reached ‘Ram Ghat’ in time. The scene was awesome-In spite of heavy rain some thousands of people were standing fearlessly challenging the god of rain and waiting for the sawari  to come. I too joined the masses in that heavy rain. It was raining so heavily that people were not able to see distant movement.

Everyone was eagerly waiting for the sawari  to come. First came some group of people (maybe some local politicians) wearing white kurtas hovering their hands in the air-feeling themselves special, but who cares. Then came another group of pundits-some were making sound out of conch, some were playing the drums and others were just dancing and enjoying the rain.

Suddenly we heard the sound of cannon one after the other. That was the indication that the lord has come to ask the whereabouts of his people. The place was filled with the sound of ‘Bol Bummmm’. Everyone got the glimpse of lord Shiva sitting inside the beautiful Palki. At last this has become my best experience to visit the lord mahakaaleshwar sawari. I wish I will be getting more and more such experiences in my life ahead. Jai Mahakaal !!!!