There are two key issues in the FDI-in-retail debate: Beefing up supply chain infrastructure and enabling the small retailer to do well by providing IT-enabled services.

The fact that the recent regulatory changes surrounding multi-brand retail in India have split the political and chattering classes neatly down the middle, is proof that the retail sector is of primary importance to the economy. Out of the $450-billion retail market, organised retail accounts only for 5 per cent. This effectively means that $427.5 billion is controlled by the unorganised retail, which seems tobe most affected by the Government’s decision to open up the sector to foreign direct investment (FDI).
While the pressures of competitive politics have compelled political parties to reach out to their constituents, the urgent need to upgrade the supply-chain infrastructure and introduce modern and scientific methods of retailing are being ignored. Accordingly, this article attempts to highlight:
the mechanisms in place to attract FDI in the supply-chain infrastructure sector; and
a framework to transform the face of the corner shops and small retailers, so that they are placed at a significant competitive advantage.

Supply-Chain Infrastructure

The retail sector depends heavily on the supply chain and logistics sector to allow it to run smoothly. However, supply chains are underdeveloped and not well integrated with the cold storage infrastructure. This is fast becoming a critical issue in India, as at present there is wastage of 30-40 per cent between the farm and the retailer. Hundred per cent FDI is allowed under the automatic route in the storage and warehousing sector, which includes warehousing of farm products with refrigeration.
Further, there are a significant number of government initiatives in this sector to provide funding and support for both Indian and foreign companies. The Free Trade Warehousing Zone Scheme (FTWZ) was unveiled by the Government to spark investments in this space. The scheme envisages the creation of world-class infrastructure for warehousing of various products, as well as transportation and handing facilities to support the integrated zones as international trading hubs.

End-to-end connectivity

Further, five such warehousing zones have been established in strategic areas across India, which are linked by major road, rail, air, and port networks. Furthermore, the Government also provides a series of direct and indirect tax benefits for companies setting up facilities under the FTWZ Scheme.
To supplement the push on this front, the Ministry of Food Processing Industries of the Government has come out with the Mega Food Park Scheme which seeks to link agricultural production directly to the market by creating infrastructure for primary processing centres, together with cold storage facilities in identified clusters. These clusters will take care of processing activities, which require cutting-edge technologies and testing facilities, besides the basic infrastructure such as water supply, power, environmental protection systems, and communication.
The current regulations envisage huge investments in the supply-chain infrastructure, and this must be stringently monitored and enforced to make sure that, within a reasonable time-span, there is end-to-end connectivity between the farm and the retailer through negligible wastage.

IT as an enabler

Until now, small retailers have found it hard to access stable, low cost and resilient information technology (IT) infrastructure.
The global providers which serviced large business were not interested in small retailers, and the insignificant population of small retailers who did invest in an IT framework, had no brand security, certainty and known resilience.
Many, if not most, small retailers do not have the time or resources to investigate the suitability of an IT solution provider and, often, perceive the risks as too high and the rewards not clear enough.
In the UK, there are a few interesting projects that have the potential to provide a massive competitive edge to the local high-street retailers. They are backed up with a world-class delivery mechanism.
Open High Street is a project that brings together local retailers on an Internet platform and creates an incentive for the local community to buy from them. This seems to be the flavour of the day with a similar project being tested in a small town in Wales.
The former is backed by Uniliver and the latter, a community initiative. Both projects, by providing the underlying infrastructure, take local retailers to the next level of customer satisfaction.
Similarly, small retailers in India need to realise the potential of IT enablement and, at the same time, reliable, robust and cost-effective solutions must be provided to make IT deployment easier in this market.

Time is right

Therefore, bold new solutions with handheld technology, supply-chain tracking and mobile payment gateways are all important for this change. And, all of this at a price which will bring a smile to a small retailer.
Therefore, while the current notification on FDI in multi-brand retail expressly excludes e-commerce firms from its decision to allow up to 51 per cent FDI, the enlightened small retailer may find protesting for removal of this clause more beneficial for them.
There is, thus, a need for disruptive technologies which enhance the ability of the small retailer to not only survive, but thrive in the changed environment.
There are examples where this has been successfully attempted and the time is right to engage with tools that can truly transform the unorganised sector retailing.
If anything, the contours of the debate surrounding multi-brand retail liberalisation need to change to address the core issues of whether and how it will impact modernisation of the supply-chain infrastructure as well as what measures can be initiated for modernising the operations of smaller retailers.
(Basu is Partner and Co-Head India Group, Penningtons Solicitors LLP, London, and Roy is Head of Sales, LPO, Tata Consultancy Services, London. The views are personal.)