FDI in Retail Sector – Is India ready for it?

Chinese Philosopher Lao Tzu said, “If you do not change direction, you may end up where you are heading”.

So, UPA-II took a bold decision this month to introduce some reforms in the direction of India’s new growth policy by announcing FDI in retail; by deciding to allow 51% FDI in multi-brand retail and a 100% in single brand. The decision although welcomed by corporate sector, took a huge beating by other political parties.

As the common man stands confused by various opinions on whether and why the decision is right or wrong, I tried to explore whether we are ready for this much needed step for economic reform.

FDI, by definition is Foreign Direct Investment into production in a country by company located in another country, either by buying a company in target country or by expanding operation of existing business in that country. No doubt, it will boost growth prospects: A look at world’s largest recipient of FDI, USA and our neighbor China will clear out the doubt, as the numbers tell their own story. According to a UNCTAD survey, India is second most important destination, after China, for FDI in retail.

                                        

It will benefit farmers and SMEs as they will get better price for their produce, which currently is less than half of the final cost at which end user buys the product. It will reduce inflation too probably, by decreasing the wastage of vegetables and fruits (which is about 40% of total production as of now) by providing better cold storage facilities.

Story is good for end user too; he will have a broader range to choose from, as different players hustle for space to stand in front of him. With knowledge of various products through sources of advertisements, modern consumer emphasizes on quality and this need will positively be satisfied too.

 

Now you must be thinking, what these political parties are crying for? Let me get to it. A drawback of FDI would be the loss of job, as it will hamper business of small retailers and chain of middlemen. This problem could be compensated up to an extent by the jobs that will be created by implementation of this plan. The critics say that it will put farmers and SMEs on mercy of big retail players. The answer to this would be appropriate regulation by government to help the suppliers. Our Honorable PM. Manmohan Singh has clearly stated the benefits of the Kirana store by pointing out many benefits such as the free home delivery system, the credit system and the convenience factor.

As far as market is concerned, the jump on Dalal Street on Friday, after notification of FDI by government, clearly indicated of the future prospects. Retail sector stocks were getting hammered since April. Shares of Pantaloons, Koutons and Vishal retail went down by 30-37%, not to mention the significant debt that these companies have incurred. The FDI pill could help solve their problem too. Real Estate sector will see boost too as Walmart, Tescos and others will need huge structures to set themselves up.

All in all, the pros overweigh the cons and let us hope this necessary step by government helps bring some much needed change.

Real Estate Decline: What’s keeping some companies like Lodha still strong?

If you recall, one of the major causes of global economic slowdown was real estate sector in America, and after the slowdown, it was this sector that took biggest beating across the globe.

look at the figures, not only demand for residential properties has touched a new low, but absorption of the commercial real estate dropped around thirty percent last year too.

But, this doesn’t mean that the slowdown has affected all real estate developers similarly. Some have seen fewer losses than others, while some, like Lodha group, have defied the trend, grabbed the opportunities in spite of
descending twirl and still are standing tall.

The Lodha group, who is building the world’s largest residential tower, 117- storey World One project (with 60% flats already sold), acquired 17.5 acre plot in Lower Parel from DLF (real estate group that got negatively affected in slowdown) recently, also paid off 2500 crore to its German investor Deutsche Bank. All this must make you wonder, what is it that they are doing right?

A major reason for success of Lodha group can be attributed to their focus of development being Mumbai. It is a common knowledge that, with infrastructure and job opportunities existing in metro cities, migration is always in
this direction, which in turn creates demand for residential and commercial property.

In an interview to Business-Standard, Abhisheck Lodha, MD, Lodha Developers, said that they spend very little time between buying the land and constructing projects and starting the sale, thereby minimizing cost overrun. This
could be one of many things that they must be doing right. 

Also for a big player in real estate sector, trust plays an important role. “Credit” is like essential lifeline, and if investors and customers both have faith in you, half of your job is already done, and well done. So, developers who
have kept this nitty-gritty in mind are still developing and hopefully will not suffer huge losses in future either.

Sorce: interview from Business standard mentioned in article (courtesy: Shraddha Rai)

Pimp My Ride: Indian Style – Are Indian Car lovers ready for something of this sort?

“We heard you like books, so we put a library in your car, so you can read books while you drive”.

If you are MTV’s Pimp My Ride fan, you already know what I am talking about. It’s my take on the memes that gained popularity after Xzibit’s similar sentences on the closure of Pimp My Ride episodes. This tingling sensation of getting your car dressed by a celebrity, Xzibit was indeed a hit in 2009 and a fad for a regular teenage American Youth.

If you don’t know what I mean, I am talking one of MTV’s most popular shows, ‘Pimp My Ride’, which used to customize a car for someone absolutely free. The format goes like this: A car lover shows off his car and persuades the Pimp My Ride team to transform his/her car, the presenter or host (usually Xzibit) goes to the car owner’s house, has a look at the car, takes it to custom body shop, where the team generally rebuilds the interiors and exteriors from scratch; including engine in some cases.

 But how much do we Indians love our car? Do we care enough to customize our car to match our personality? And if we intend to, do we have any options around to make this dream come true?

 

 

My neighbor who is in his late twenties bought a car a few years ago and fell in love with it. He would say, “Some have cars, some have girlfriends and some have girlfriend because they have cars”. The way he took special efforts to polish dirt off of his car and as the seats were covered with plastic that they came with for months after the purchase, I concluded his car had taken the place of his girlfriend.

 Anyways, two days ago, standing in the window, I saw him driving. The car didn’t look like what it was years ago. As he drove, front left tire got in the pothole (they have taken over the city roads, as usual); the car struggled to get the part out, shook hard, and gave up. Finally, owner got down and asked for manual help. By this time, I was counting dents, making out shapes of scratches, looking at the brown under red paint peeking through. And, I declare, his car needed some serious pimping.

What I intend to imply by this narration is, the excitement that you feel for your new car, wears out with time and your car merely becomes just a mean to get you from one place to another, not something you would like to show off or spend time in.

If we had an Indian version of Pimp My Ride, I think it would definitely encourage people customize and maintain their ride. If you own a car, you know that buying a car is not difficult, with banks literally putting money in your hands. What you’ll find tricky is maintenance. It is expensive, with many unorganized, unrecognized service brands, and with increase in car sales, service sector is in demand. 

 On the show: Pimp My Ride, customizing a ride involved many changes made to car within 12 days, from new paint to accessories, such as race car seats, tires and internal electronics. In some cases, dryer (for a surfer dude), fish tanks and electronic fireplaces were installed as per owner’s need.

 Primarily speaking, Indian Audience would have concentrated more on Mileage and the Averages their Car has to offer and get a replacement of a new engine by an Indian Celebrity for Free on the show, which sounds like a bonus deal for Indian mentality but our survey showed that Indian’s, just like the American audience, have a liking for flames design pattern on their front bonnet along with Wings and nitro-oxide cylinder at the rear part of their cars. An Indian version not only will be popular, it may give a perspective to car-owners on how they can make their ride a cool place to hang out at.

 

(ref: wikepedia, mtv.com)

 

Carbon Credits: How India is richer in this category than major European Giants

 

American politician Joe Lieberman had said, “Global Warming is not a conqueror to kneel before but a challenge to rise to. A challenge we must rise to.”

United Nations had same thoughts when Kyoto treaty was signed by 170 countries which required all participating and mainly developed countries to reduce their carbon emission.

Now what do we mean by that? This treaty introduced a term ‘Carbon Credit’. A carbon credit is an emission permit used to control emission of carbon dioxide or other equivalent Green House Gas (GHG).

 

Each country has a set quota – Assigned Amount Units (AAUs), each unit allows that country to emit one metric ton of carbon dioxide. A country in turn assigns these units to various organizations and local businesses called ‘operators’. These ‘operators’ are registered after meeting UNFCC (United Nations Framework Convention on Climate Change) standards.

Now if your operations are under control and emit less carbon dioxide or equivalent GHG, you can sell your unused allowances as ‘carbon credits’ and the ones who are about to exceed their assigned units will buy it. You can hold out your carbon credits if you do not wish to sell at present. A few companies in India have been holding their credits for past two years. Multi Commodity Exchange (MCX) was first market in Asia to allow trade of Carbon Credits.

To reduce emission, a company can implement new technology or improve existing one. Developed countries that cannot reduce emission, can tie-up with developing nations and help them to develop eco-friendly technologies, thereby helping that country or company to get credits. So, a European nation can reduce emission in its subsidiary located in, say India.

Within last three years, India and China emerged as top two countries holding maximum Carbon Credits in world. India, early in beginning, generated 30 million units, and now has credits worth approximately Rs 20,173 crore. It is expected to grow as Europe will be relying on coal as fuel (that discharges carbon dioxide in huge amounts) and will need to buy credits.

Carbon market in India is growing faster than IT, BioTech, and BPO, as Indian firms keep upgrading their plants through installing pollution controlling equipments frequently.

So, help reduce pollution, earn credits (monetary benefits) and vice-versa.

The first commitment period of Kyoto Treaty (2008-2012) ends this year, next commitment period will start on January 1, 2012 and will go up to 2017 or 2020. It’s sad that in spite of being major contributor to global carbon discharge (25 percent) USA refused to participate in.

 

 

Sources:  articles from indiatimes.com, rediff.com, wikipedia.com 

(Courtesy : Shraddha Rai)