Too much happened too soon when the Indian government announced 51 per cent FDI in multi brand retail. The hasty announcement and the quick pull-back of the policy decision showed how unrehearsed we as a nation are to a globally accepted norm that would be to the advantage of the stakeholders — the producers, traders and the consumers.

In 64years of free India, we are yet to put in place the basic food supply chain infrastructure. What is even worse, the government by this policy announcement, expected ‘foreign investors' to build the supply chain infrastructure. This is a myth. The reality is, foreign investors will come only if the basic infrastructure is in place. It is evident that there are many misconceptions about investments in the organised retail sector. Similar negative arguments were used when the government opened up the banking, insurance, telecom and automobile sectors. All those resisting opening up the retail sector should know what is happening, in this space, in Europe.

Infrastructure

Firstly, Europe recognises that inefficiency is often caused by elements beyond the control of the retail sector — external burdens linked to insufficient logistics infrastructure. It is estimated that logistics accounts for 12-15 per cent of the final cost of finished products. Retail businesses in Europe are seeking to cut costs, for instance, by using intermodal transport, that is, the combined use of road, rail, waterways and air, reducing fuel consumption and the time spent in transit.

Hurdles to an efficient distribution chain are not linked to infrastructure and technology alone. Unlike the clumsy, cumbersome check-posts between States in India, nations in Europe have extensively reduced bureaucratic bottlenecks and totally eliminated check points.

In Europe, the distribution of imports from outside the EU is facilitated such that a container can be sent from the receiving harbour in Europe directly into a distribution centre serving the corresponding retail country. Within Europe, retail is the largest private sector employer. Almost 170 million — about 30 per cent of the population — work in retail and support services such as logistics, generating 13 per cent of EU GDP.

Predatory Pricing

Across India, concerns are raised about ‘buyer power' and ‘exploitation' by predatory pricing. EU countries have addressed the problem by introducing appropriate laws. Several EU nations have instituted prohibition on selling below cost of production. The law also requires that contracts between a retailer and its supplier clearly state all pricing terms with no hidden discounts, and has severe procedures to penalise offenders. While the basic principles of freedom of contract are maintained, there is an established element of ‘fairness' in contracts.

European retailers understand that engaging in unfair practices would harm, not profit them. Furthermore, to offer consumers the right product at the right location at the right time at the best price, retailers need to be able to rely on sustainable supply chains.

In Europe, modernisation in the retail sector has been accompanied by increasing concentration as a means of developing economies of scale and increasing efficiency to the benefit of consumers who can purchase safe, quality products at affordable prices.

The European retail sector is defined by aggressive competition among retail companies, resulting in relatively low profit margins and a relentless drive to develop novel services to attract consumers. Even the most resolute retail markets unswervingly show the lowest increases in food prices.

Largely, the adeptness of the links that make the chain — from farm to the retailer — determines to a large extent the retail price. Promoting competitiveness and competition throughout the supply chain guarantees consumers the best deal in terms of choice, price and quality.

Deal for Consumers

The most crucial element to the delivery of a truly sustainable retail industry is collaboration. Producers and retailers will need to unlock vertical collaboration within supply chains.

The Indian Government will need to facilitate the emergence of consensus within the stakeholders. And civil society will need to engage with all of these parties to develop a shared vision.

Taking a cue from the European experience, I firmly believe that FDI in retail can play a vibrant role and drive far-reaching changes up and down the supply chains.

Retailers' enterprise and resourcefulness can support economic development around the country. Moreover, retailers can help hundreds of millions of Indian consumers make sensible choices at reasonable prices.

(The author is a former Europe Director, CII and lives in Cologne, Germany. blfeedback@thehindu.co.in)

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