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4 things that could change India
February 02, 2006
It has, indeed, been a remarkable fortnight for me. Four significant events took place that can have a tremendous impact on many of us in India in the coming few years.
The first of these has been the bid from L N Mittal's company to acquire Arcelor. At about $20 billion, it is the most ambitious (and audacious) business move by any Indian and deservedly made it to the front page of most of the international financial press.
I was in London on that day, and felt rather proud when the development came up for discussion in the course of a meeting with a director of one of the largest European consumer products companies as we discussed their plans for investing in India.
Just a few days before this happened, Reliance Industries made a rather low-key announcement for an entry into the retail sector with an initial investment of over $750 million.
While the company itself did not share many more details beyond this, the national and international media again gave full respect to the importance of this announcement and more than one leading international daily, e.g. the Financial Times, gave this news a front-page treatment, speculating (like many others) that this investment could just be an initial tranche of a much larger commitment from Reliance to this project.
Kishore Biyani continued to make several announcements in the same fortnight. The most significant one was the announcement that the Kshitij Fund, promoted by him, would launch 51 shopping malls across India, developing at one go almost 15 million square feet of retail space, including a flagship 2 million square feet development at Mumbai using a leading European design firm's services, entailing an investment of over $550 million.
Mr Biyani's Pantaloon also made news with its deep discount offer at his Big Bazaar stores to coincide with Republic Day, leading to a virtual stampede at some of the locations and record sales for a single day at most of its outlets.
Why do I think it worthwhile singling out these developments amongst countless others in the same period? To me, the most exciting interpretation is that these reflect that Indian businesses and entrepreneurs are finally not only thinking really big but also acting audaciously big.
This will, in the years to come, will propel many Indian businesses to operate on a scale that can actually provide competition to the largest and most successful of global players in their respective sectors rather than just enable them (the Indian companies) to be able to withstand global competition.
Reliance's announcement implies to me the first definitive step to bring a major economic (and social) change in a way that will impact hundreds of millions of Indians very directly and tens of millions indirectly.
The indirect impact will be on those engaged in a wide range of economic activities including farming, consumer goods manufacturing, and myriad other services that bring hundreds of categories of goods and services from the producers to the consumers.
The $258 billion (in direct consumer retail spending in 2005) opportunity has been there for all Indian businesses to grab, and indeed some have made a serious attempt, e.g. Pantaloon, Shoppers Stop, RPG Group, Trent, and others.
However, with due respect to all of them, their vision has been more conservative. In the very near future, consumers beyond the top 8-10 cities will get a chance to experience modern retail and, with it, get the gains of substantial price reductions in almost all the items that make up their daily and weekly shopping basket.
The unprecedented consumer response to Big Bazaar's discount offer on January 26 this year can demonstrate how keenly Indian consumers are looking forward to the arrival of modern, well-organised retail formats.
Reliance's announcement will, hopefully, lead to many other Indian business groups to consider making very large greenfield investments directly in retail ventures as well as in the value chain leading from the farm/manufacturer to the retail stores.
In recent years, too much has been speculated about the entry of some of the major international retail businesses into India while the opportunity went abegging.
The best way to compete with some of the international giants is not to spend time and energy in restricting FDI but instead focus on building large, successful retail businesses that would give these local entrepreneurs a winning headstart.
This brings me also to mention about a non-event that ended up occupying unfair share of media attention and created the proverbial storm in a bucket! This non-event has been the creation of a new category of retail business by the government of India-single brand stores - and then the very "bold" decision to allow 51 per cent FDI in the same.
Even this is very likely to be stifled by a plethora of bureaucratic riders that will only reflect the muddled thinking our political class has on this very important facet of economic activity.It is unlikely that this "partial opening" of the Indian retail sector will see foreign investors rushing to India to make investments. Indeed, the only beneficiaries of this announcement have been those (including the undersigned) who got dozens of sound-bytes in, and some journalists and columnists who got something to write about!
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