Rama, 40, who made the front room of her small house a kirana, is completely taken off guard when confronted with the FDI question. She has company in Gandhinagar, a locality in Hyderabad. Several of her peers in the lanes and bylanes of this area have absolute no idea of the impending upheaval in the retail industry.
A random survey of 10 neighbourhood mom-and-pop stores in this colony reflects a general lack of knowledge on the Government's decision to allow FDI in retail.
Mr Ramesh, who runs a grocery shop that makes a daily turnover Rs 20,000, is more clued in. He listened to the news last night. “It is going to uproot us. We will not be in a position to offer the kind of variety and prices they could offer,” he said.
Mr M.N.C. Prasad, President of the FMCG Distribution Association in Vijayawada, sees the development in a much larger perspective. “All of
Margin pressure
Distribution firms get a margin of 6-10 per cent on FMCG (fast moving consumer goods). They share some of this with kiranas , and the rest on establishment costs. They complain that these margins have not changed over decades despite sharp escalation in cost of operations.
Mr Prasad gives an example on how FDI could kill unorganised retail. “After the launch of Bharti-Wal-Mart cash-and-carry facility in Vijayawada, there is a dip of 20 per cent in the distribution business. Organised players can talk to manufacturers and get products much lower than the MRP, while we still are saddled with low margins,” he said.
About 450 distributors make a turnover of Rs 100 crore a month.
Cost of investments
Mr Nitin K. Parekh, Chairman of the Retail Committee of Federation of Andhra Pradesh Chambers of Commerce and Industry, sees a real threat in flooding of funds from abroad. “They get bank loans at rates of as low as 1-2 per cent as against 11-16 per cent. This will make a huge difference,” he says.