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Back DCM Shriram chief bats for FDI in rural retail

Current policy skewed towards urban areas.

Harish Damodaran

New Delhi, Sept. 10

Restricting foreign direct investment (FDI) in multi-brand retail to only companies that have stores
in cities with more than one million population is not a good idea, according to Mr Ajay S.
Shriram, Chairman and Managing Director of DCM Shriram Consolidated Ltd (DSCL).

“If a key purpose for allowing FDI in retail is to help integrate the farm economy with urban
markets, these restrictions make little sense. Modern retailers tend to source more from areas
near to their outlets. If you limit FDI only to large cities, they will have no incentive to invest in the
backend infrastructure and supply chain linking up remote rural areas,” Mr Shriram told Business
Line.

Collection centres

He cited a study showing how the collection centres of large domestic retail chains are now
mostly concentrated in peri-urban areas of Tier-1 or, occasionally, Tier-2 cities. For example,
around Bangalore, the furthest such centres are at Kolar, which is hardly 70 km from the city.
Moreover, the most perishable items such as delicate greens are sourced even closer, from within
say 20 km.

Modern retail

Mr Shriram felt that a genuine two-way engagement between retailers and farmers is possible
only through the formers' physical presence in the rural market. Modern rural retail, in turn,
cannot be viable unless it covers — apart from FMCG or lifestyle products — the marketing of
agri-inputs (hybrid seeds, crop protection chemicals, water-soluble fertilisers, plant growth
regulators, special farm equipment, etc) and extension services (including financial and insurance
services).

Better for farmers

“FDI in retail does not necessarily mean only Wal-Mart or Tesco. There are many global chains
specialising in rural retail, be it Agrium Inc. of Canada or Australia's Landmark, Ruralco and
Elders, and New Zealand's RD1 (owned by the dairy giant, Fonterra). It is these players who
can make a huge difference to our farmers by providing products and services relevant to them
and based on the latest technologies,” he pointed out.

The Department of Industrial Policy and Promotion had, in a discussion paper in July, suggested
that FDI in retail be permitted subject to its ambit being confined to cities with population of more
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than one million as per the 2001 Census. “That would automatically shut out rural masses (both
farmers and consumers) from what can potentially be a major developmental initiative. We have
only 35 towns having more than a million people, with a total population of 108 million. Is FDI in
retail intended simply to benefit high-income consumers in cities?” Mr Shriram quipped.

Hariyali Kisaan bazaar

DSCL, which earned a profit after tax of Rs 71.28 crore on net sales of Rs 3,402.07 crore for
the year ended March 31, 2010, runs a rural retail network of 292 outlets under the Hariyali
Kisaan Bazaar (HKB) banner.

This business grossed sales of Rs 630 crore last fiscal, while registering a loss (before interest
and tax) of Rs 81.2 crore against a capital employed of Rs 410 crore.

“It will take us a couple of years or so before HKB starts making money. Both margins as well
as sales per square foot are low in this segment”, admitted Mr Shriram. HKB's 292 rural outlets
include 85 ‘centres' of 10,000-15,000 square feet area each and the balance 200-odd ‘stores' of
3,000-5,000 square feet.

“For viability, a centre must have annual sales of Rs 4-8 crore, while being Rs 1-3 crore for
stores. And that is what we are now working towards,” said Mr Shriram, adding that the
company is open to outside investment (both equity and technology) at some point in HKB.

Others in the picture

Besides DSCL, the Murugappa Group-controlled Coromandel International (Mana Gromor'),

Tata Chemicals (‘Tata Kisan Sansar'), ITC (‘Choupal Saagar') and the Future Group's Aadhaar
Retailing Ltd are among those operating dedicated rural retail networks.

During 2009-10, the 432 ‘Mana Gromor' centres (all in Andhra Pradesh) are estimated to have
done sales of Rs 640 crore, while the 673 Tata Kisan Sansar outlets achieved a turnover of Rs
212 crore.

The profitability of these businesses is not publicly reported.

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‘Feedback to help formulate decision on FDI in retail'
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Govt cautious on opening up retail FDI — Exploring role model for multi-brand segment

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