International Experience on Policy IssuesIndia vs China: FICCI Footfalls 2002 15th November 2002 New Delhi International Experience on Policy Issues India vs China Alan Rosling Chairman, Jardine Matheson Group - India


The retailing industry in India is under-developed, fragmented and inefficient – but is huge in size ($ 180 bn): The retailing industry in India is under-developed, fragmented and inefficient – but is huge in size ($ 180 bn) 12 million kirana shops 96% less than 500 sq. ft. Limited stock / choice But convenient, local and service oriented Wholesale system under-invested with 20-40% wastage


Retailing worldwide is the biggest private sector industry, so its neglect in India is odd: Retailing worldwide is the biggest private sector industry, so its neglect in India is odd Accounts for almost 10% of GDP in most countries Major employer in most economies 16% in US 15% in Brazil 12% in Poland 7% in China Generates competition which results in reduction of prices product and service innovation enhanced customer experience Major driver for real estate and urban development


The growth of modern retailing and economic development clearly go hand in hand: India Indonesia Malaysia Thailand Philippines Korea Argentina Taiwan Singapore U.K. Germany France Brazil 33% 66% 100% China The growth of modern retailing and economic development clearly go hand in hand Metro India


Growth in Retailing in India is constrained by : Growth in Retailing in India is constrained by Policy neglect Shortage / high cost of real estate Complex regulatory regime Inefficiency in supply chain Paucity of expert management and trained staff Availability and cost of funds Ban on FDI


The Government is fully aware of the potential benefits of FDI in retail –but feels constrained by political considerations: The Government is fully aware of the potential benefits of FDI in retail – but feels constrained by political considerations “FDI in food retailing would lead to more efficient supply chain management systems that can reduce the large gap between the price received by farmers and that paid by consumers. It would thus benefit both farmers and consumers besides creating profitable avenues for FDI. But in the short term, traders and intermediaries in direct competition with new entrants would suffer a loss in income. Over time the productivity gains would generate much more income and employment opportunities, even for these intermediaries, by stimulating agricultural growth and consumer demand.” “The retail sector in India is dispersed, widespread, labour intensive and disorganised. In the light of this it is not thought desirable at present to lift the ban on FDI in retail trade.” Report of the Steering Group on FDI, Planning Commission, August 2002


The voices against liberalisation are few in number – but influential: K. S. Sudarshan RSS Sarsanghchalak (as quoted in India Today) The voices against liberalisation are few in number – but influential “There have been attempts to allow multinationals in retail trade. The Swadeshi Jagran Manch (SJM) has gone to the Prime Minister thrice and got the proposal scrapped. But they are advancing again because there are officials connected with MNCs, or whose children are working in MNCs.”


By contrast China began to liberalise retailing a decade ago: By contrast China began to liberalise retailing a decade ago FDI permitted in 1992 FDI restricted to 6 major cities (including Beijing, Shanghai and Guangzhou) and SEZs Foreign ownership restricted to 49% of JVs 40 foreign retailers have secured approval since 1992 $22 billion of FDI attracted, 3.6% of total FDI Current restrictions on FDI will be phased out over 5 years as condition of WTO entry


A retail revolution has resulted from this policy : A retail revolution has resulted from this policy


Retailing in China has grown at 15% compound since FDI was permitted in 1992: CHINA CASE STUDY Retailing in China has grown at 15% compound since FDI was permitted in 1992 Source : China Statistical Yearbook 2001


The quality of experience, choice and prices have improved dramatically for ordinary Chinese shoppers: Hypermarket Price comparison (RMB) 1 Kg rice 6.76 1 Ltr cooking oil 8.70 1 can Coke 2.25 The quality of experience, choice and prices have improved dramatically for ordinary Chinese shoppers Traditional Store Savings 5.42 20% 7.88 9% 1.70 24% CHINA CASE STUDY


Traditional retailers have lost relative market share to modern formats,but have also grown: Traditional retailers have lost relative market share to modern formats, but have also grown 1996 2001 Traditional 1,920,604 2,565,028 Supermarkets 13,079 152,194 Convenience 18,091 Hypermarkets 593 NUMBER OF STORES Traditional 1,920,604 2,565,028 Supermarkets 13,079 152,194 Convenience - 18,091 Hypermarkets - 593 CHINA CASE STUDY Source : Retail Census 2001 AC-Nielsen


Employment in retailing has grown at 6% p.a. since 1992 to 53 million: Employment in retailing has grown at 6% p.a. since 1992 to 53 million CHINA CASE STUDY Source : China Statistical Yearbook 2001


And the majority of even the leading retailers are Chinese owned: And the majority of even the leading retailers are Chinese owned CHINA CASE STUDY Source : Retail Census 2001 AC-Nielsen TOP 10 RETAILERS Turnover $ m No. Stores 1. Lianhua 1,698 1,225 2. Hualian 1,027 818 3. Beijing Hualian 966 42 4. Shanghai Nong Gong Shang 903 325 5. Carrefour 823 28 6. Suguo 638 663 7. Trustmart 607 43 8. Metro 598 15 9. China Resources Vanguard 561 343 10. Wallmart 422 22


The policy concerns expressed about permitting FDI in retail in India,are not supported by the Chinese data: FDI in retailing in China has played a positive role in stimulating the retailing revolution The policy concerns expressed about permitting FDI in retail in India, are not supported by the Chinese data Impact on traditional retailers Loss of employment “Level playing field” for nascent Indian retailers


There are clear and undeniable benefitsto faster development of modern retailingin India: FDI should be liberalised There are clear and undeniable benefits to faster development of modern retailing in India Consumers Farmers / processors Workers Government Economy Choice / Price / Quality New opportunities Good quality jobs Higher tax collection Development stimulus


Foodworld Hoskote Illustration: Foodworld Hoskote Illustration Foodworld is India’s largest grocery retailer with 81 stores Only retailer with FDI (prior to closure of sector) Key success factor - quality and pricing of fresh produce Now buying 250 tonnes per month of fresh vegetables direct from a group of farmers Eliminates 7 layers of middlemen in traditional wholesale system


Foodworld Hoskote Illustration: Foodworld Hoskote Illustration Benefits for farmer Better price realisation Packing margin Readymade channel to market No credit risk Advice Benefits to consumer Product fresher and more consistent Price saving New products / varieties Benefits to Foodworld Reliability of supply / fresher product Product graded / packed to specification Enhanced margin Reduces waste in system sharply


The Policy Choice: vs The Policy Choice PROTECT EXISTING FRAGMENTED AND INEFFICIENT WHOLESALE AND RETAIL SYSTEM POLICY CHANGE TO ENCOURAGE MODERN RETAILING TO BENEFIT CONSUMERS, FARMERS AND FOOD PROCESSORS