Mock Group Discussion - FDI in Retail Sector will boost the Indian Economy

Group Discussion is an esential component of MBA admission Selection process at few IIIMs and many leading B schools.so we at MBARendezvous.com - India's content lead MBA Website present you Mock GD as follows : FDI in Retail Sector will boost the Indian Economy The topic is about the dilemma of whether or not to introduce the FDI in retail sector in Country. Will it boost the economic growth or ruin the internal structure of the sector? Will the Indian Companies be able to match the expectation and handle the competition? The topic will be discussed by 6 participants for admission in a top B-School. Amar: Good morning dear friends. We have been given a topic with so much of scope for discussion. I am very hopeful that we all will give our best shot and this discussion will be very enlightening for all of us. Let me first explain FDI. Foreign direct investment is an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. And retail could be defined as selling of goods to the end consumer for final consumption. In India, retail sector is expected to grow at significant rate in coming few years. The total size of Indian retail sector, including organized and unorganized sector, is $300 billion, where currently the organized sector accounts for 4% only. It contributes about 14% to the national GDP and employing 8% of the total workforce, second only to agriculture in the country. An estimated 40 million Indians work in retail outlets. India is the second most attractive destination for retail among thirty emerging nations, making it 5th most desired retail destination in World. Bhavna: You are right my friend. Here, I would like to throw some light on the current major happening in retail sector regarding FDI. The UPA government is keen to open up the Indian market for foreign investments. According to the government, a 51% foreign direct investment will benefit consumers and farmers, and will also aim at bringing down inflation, along with protecting the interests of small traders. This decision of the cabinet on FDI in retail has triggered protests by opposition and key allies of the ruling United

Progressive Alliance, and they are demanding a roll back of the policy due to the concern of loss of livelihoods it is likely to create and Chetan: Hello friends, I think we should focus on the topic and discuss whether allowing FDI in retail sector is a right step or not. I think 51% FDI will accelerate retail market growth, providing more employment opportunities. It is a basic principle that creating competition in general is good for the market. But I have a doubt that since in India, unorganized sector is more compared to organized one, there is a lack of proper procurement and distribution system. How will the rest fall in place when the giant retailers enter our market and back-end procurement will still remain a big problem? Deepika: Hello friends. One more issue that is being raised is about the security of small and medium scale enterprises. But when Confederation of Indian Industry conducted a survey, they found that most SMEs think it would translate into bigger gains for them. Two third of the 250 small and medium companies from across the country that responded to the CII survey considered the entry of multinational retailers an opportunity for their companies. About 21% said it would be a threat to them. And About 98% of the respondents feel allowing greater FDI in retail will result in substantial growth in sales of their products. Of these, 21% foresee the impact on sales to be excellent, or over 20%. A majority of the companies surveyed feel the size of their industry or company will certain grow. India's growing retail boom is a success story and according to me allowing fifty one per cent FDI in multi-brand retail and its early implementation would give a major boost to the all round growth of organized retail in the country and will also have substantial positive impact on the growth of SMEs. Gaurav: I agree with Deepiks as Government has also made it mandatory for any single big brand retailer to source at least 30% of the value of products sold from Indian SMEs. This will rather help SMEs achieve qualitative improvements and better branding of their products. Opening of the retail sector to foreign players will also lead to improvements in supply chain efficiencies which in turn will integrate small and medium size enterprises into the modern trade process, resulting in substantial amount of knowledge and skills transfer in the sector. FDI will only help SMEs supply in large volumes, increase quality and become a vendor to international

players and increase the quality of products and become cost competitive in global arena. Traditional trade will continue to have its own place and should not decline because even in the last three years when modern retail has grown 24%, unorganized retail has continued to grow, albeit at a slower rate of 10% to 12%. Ashish: Good Morning friends, I think allowing 51 % FDI in multi brand retail will give a boost to the organized retail sector, which positively impacts several stakeholders including farmers, consumers, MSMEs and hence, the overall economy. Opening up of FDI in Retail can increase organized retail market size to US$ 260 billion by 2020. This would result in an aggregate increase in income of US$ 35-45 billion per year for all producers combined; 34 million new direct jobs and around 4-6 million new indirect jobs in the logistics sector, contract labor in the distribution and repackaging centers, housekeeping and security staff in the stores. The government also stands to gain by this move and can be expected to receive an additional income of US$ 25-30 billion by way of increased tax collection and reduction of tax slippages. Bhavna: I think FDI in retail should be allowed as it has the potential to bring into India foreign capital, technology, and managerial expertise of big international retailers. It can also develop an efficient linkage between the back-end supply chain and the front-end via capital investment and technological inputs. Once these multi-chain retailers establish themselves, they will create infrastructure facilities, which will also propel the existing infrastructure. FDI will also transform the way perishable agricultural produce is acquired, stored, preserved, and marketed, and thus help control Indias persistent food inflation. And thus the fear that FDI will have a negative impact on the small retailers is completely wrong. Chetan: By allowing 51% foreign investments in the Indian market, Government will promote healthy competition in market. It will teach the local retailers about real competition and help in insuring that they give better service to Indian consumers. It is obviously good for local competition and I dont see as a consequence, our local kirana shops disappearing. The kirana stores operate in a different environment catering to a certain set of customers and they will continue to find new ways to retain them. I dont see a problem with FDI as it will boost our economy.

Amar: I have been listening to whole of this conversation for some time now, but one point that all of you are missing here is that if there are so many advantages and benefits, why few section of our society is against it? It is for the reason that if 51% FDI is allowed in retail market, it will be a big trouble for the small shopkeepers. The big giants entering the market will surely impact the small store owners. The government says that the farmers will benefit, but I feel it will just be a temporary benefit. Once these giant foreign retailers have monopoly, they will start exploiting the market. I feel in the long run, it will not benefit the Indian economy. For example in a country like France, Walmart was not permitted to set up its stores whereas in Germany, FDI is not allowed. If the foreign countries are not allowing Indian goods to be sold in their market, why should then we give them a chance to set up base here. The discounts that these big retail stores offer in order to lure customers are also now being offered by our kirana stores. I feel that people should not fall prey to big retail stores because it is a trap wherein consumers end up buying more than what is required. Customers feel that they are getting better deals, but they are at the same time enticed to buy more. Gaurav: But dear friend, if you are comparing Germany and France, why dont we compare ourselves with China? China permitted FDI in retail way back in 1992. It has since attracted huge investments in the sector without affecting either small retailers or the domestic retail chains. Endowed with the worlds largest population, China has virtually become the focal point of global corporations who seek cheap labor as well as the potential of reaching the worlds largest market of consumers in an environment of policy preferences given by the Chinese government to attract FDI. China has consistently maintained its highest rank over the decade among the top 10 FDI destinations in Asia. I think Indias credit worthiness will improve with more FDI inflows that will result from economic reforms. International rating agencies usually look at the total foreign exchange reserves and the FDI inflow as a criterion for rating any country. Chetan: Exactly, and we should also remember that retailing is not an activity that can increase the GDP by itself. It is only an intermediate value-adding process. If there are not many goods being manufactured, there will obviously not be many products to be retailed! FDI can increase the productivity of all inputs in the manufacturing process by bringing new technologies and know-

how, which in turn can spill over to the rest of the economy. It is widely acknowledged that FDI can have positive results for the Indian economy, triggering a series of reactions that in the long run would lead to greater efficiency and improvement of living standards, and greater integration into the global economy. Deepika: Friends, I think its time now that we should conclude our discussion. As a concluding remark, I would say that like two sides of a coin, FDI in retail sector will also have its pros and cons. Like, if we consider its main advantages, we can say that it will bring modern technology, improve rural infrastructure, create a competitive market, enable our farmers to get better prices for their crops, Government will get an additional US$ 25-30 billion by way of taxes, a solution for food inflation as investments in cold storage chain infrastructure would reduce loss of agricultural produce and provide more options to farmers. And some disadvantages could be that we will be competing with such economies whose interest rates are as low a 4% as compared to our 14% to 16%. Also, we engage millions of uneducated and semi-educated people at various stages of retail business but Tesco and Wal-Mart will only engage smart and educated workforce in small strength, comparatively. Hence we can say that if FDI in retail is allowed with certain preconditions, it will help boost the Indian economy in the long run and will project a positive image of India regarding its liberalization policies. It will help growth of exports and employment generation. Therefore it must be allowed and at the same time interests of small retailers be also protected. Remarks: Overall a good team with members willing to participate as no one asked anyone to speak; rather everyone picked their own chance of entering the discussion and put forth almost all the detail related to this sector and topic. Very interesting topic discussed with a lot of energy. Read our complete module on Group Discussion :http://www.mbarendezvous.com/gd.php Read Mock Group Discussions, GD articles / topics , stay tuned toMBARendezvous.com - India's only content lead MBA Portal.