FDI Retail in India - A Boon or Bane !!!

Before we delve deep into present raging issue of  FDI retail that has stalled Indian parliament for days and has gained undue political mileage all across the country , we will discuss the retail formats & CoS (Company of Secretaries) proposal for allowing FDI in retail sector.

Retail Formats in India-

1.      Cash & Carry format -Businesses accept only cash for their product or services .Company has no Credit & Recievables .This format affects the Wholesale dealers in the supply chain of retail .

     2.   Single Brand FDI - Proposal to raise it from present 51 % to 100 %

.

      3. Multi Brand FDI - To raise to 51 %.   

CoS ( Company of Secretaries) criteria for allowing FDI in Retail Sector of India :

1)  Stores should be opened in the cities with population of over 1 million. As per 2011 Census ,45 

Cities in India satisfy this condition.

2) Minimum capital required for FDI is $100 million out of which 50% should go for back-end infrastructure development.Thus , the retail chain will have minimum $50 million for core business, i.e. to set up retail chain across India.

3) 30% of goods and commodities should be purchased from local suppliers.Presently,our current retail chains purchase around 65%-70% of their supplies from local suppliers.

Advantages :

1)  Efficiency -Improves Supply chain efficiency by introduction of modern & globally competitive supply chain in Indian retail sector ,therby reducing wastages & inefficiencies from Producer end to Consumer end.

2)  Pricing -   Retailers will provide competitively lower priced products of higher quality in market.

3) CRM - It will improve the customer relationship & feedback network with retailers which in turn will help to better profile customers .It enables companies to  launch future  products & services in alignment with consumer behaviour.

4) Economies of Scale - Reductions in average costs attributable to production volume increases resulting in overall cost advantages & operational efficiencies  of businesses.

5) Assortment -  It ensures the right product in the right store at the right time and at the right price. It implies anticipating what your customers are looking for and building a product mix that attracts the customers. 

Disadvantages :

  

1) Small traders and store owners (called Kiranas in India) don’t have enough capital and expertise to compete with big retail chains like Wal-Mart and Carrefour.They will not able to buy goods and commodities at lower price from vendors and suppliers contrast to big retail chains who have strong supply chain network all across the world thus have a high bargaining power to buy goods at lowest price.

2) With high working capital in big retail chains.They do have a capacity to sustain losses for a longer period ,therefore able to undercut prices of goods & commodities which eventually lead to desertion of small stores and traders at initial stages.

3) Multibrand is customer-centric rather than vendor centric .As a retailer you have to decide your business strategy.

In the bottomline ,taking all factors into consideration ,the benefits associated with Multibrand retail outweighs the disadvantages attached to it if implemented & regulated in a standard synchronised manner.

 

 

Social Media & Technology Predictions for 2012

·          Top Predictions for social media in 2012   

• Privacy will be given top priority  
• Complete decentralization of social networks                                                             
• Our interaction with search engines will be revolutionized                                              
• Rise of the content aggregators                                                                               
• Social media augmented reality                                                                                 
• Influencer marketing will be redefined

·               .   Facebook set to reach 1 billion users by 2012   

   .  Smartphone sales to surpass combined PC & Laptop sales by 2012.

·                . Cloud Computing implementation to double by 2012.

·              .  Plastic Money  loses relevance .Near field communications (NFC) and mobile payments will  accelerate.

·              . Blu-Ray Disc  will be 50% of the market by 2012   

·               . Mobile-Phone Companies Team Up for Standardized Charger by 2012

·      Talking cars to be on the road by 2012   .

    

·         IBM to deliver world's first 20 Petaflop Supercomputer by 2012   

·         95% of enterprise workers will use Instant Messaging (IM) as primary interface for real-time communications    

 

·         WiMAX to cover 1 billion users by 2012   

·          50 million projectors built into phones by 2012   

·         900 HDTV channels by 2012   

·         Social media users to exceed one billion by 2012   

·         25% of Entertainment by 2012 Will be Created and Consumed Within Peer Communities   

·         Nearly 24 million subscribers to use 3G LTE technology for mobile broadband services by 2012   

·         Mobile VoIP users to hit 250 million by 2012   

·          Invisible military  tank ready for service by 2012   

·         Global Ethernet market will exceed £15bn in 2012 

·          Mobile TV Worth $6.6 Billion & 120 Million Viewers By 2012   

·         Google to tell us what we want by 2012   

·         Online ad spending to double to $ 35.4 billion by 2012  

·          Online gaming to cross  $13 billion by 2012   

·         Global mobile broadcast TV subscribers to exceed 150 million in 2012   

     .     Gmail storage to reach 3560 MB by 2012   

·        
Wi-Fi phones will disappear from the market by 2012   

·        
Broadband to reach almost half a billion subscribers worldwide by 2012   

·         Residential VoIP users to hit 267m by 2012   

·        
iPod will release a new model by 2012 capable of holding a whole year's worth of video contact   

·         India To Have 13 Million Wireless Broadband Subscribers By 2012   

·          

·         The Web will be out of IPv4 addresses by 2012   .IPV6 will emerge as the new standard.

·       

   

Greek Crisis & its solution in current scenario

The crisis in Europe is systemic and multiple ( a sovereign debt crisis ,a banking sector crisis and an under-investment crisis ). It is rooted in the structural flaws of the Euro & in the malignancies of Europe's banks & Greece being a member of Euro Zone is no exception to this economic carnage .There are solutions , but those can only come from a systemic implementation.

Greece currently faces a crisis on two fronts: there has been rapid build-up of massive  public sector debt due to persistently high budget deficits, and a galloping excessive external debt due to several years of massive current account deficits. Greece has been living beyond its means and must immediately cut spending and imports to check its unsustainable deficits.She has been crippled & overpowered by crony capitalist policies dictated by handful of developed countries.

The main reasons cited for its current crisis are :

• Burgeoning 124.9 % debt to GDP ratio  , Short term debt (-20.8%) & Current Account Deficit (% GDP   - 10.3 %)
• Destruction  of countries 's 2 largest industries - Shipping and Tourism in late 2000 financial crisis.
• Budget deficit of 13.6 %.
• Excessive reliance of Greek Govt bonds to external markets .External Debt ( 77.5 % of GDP).
• Degrading of Greek debt rating which led to loss of investor confidence in Greece ability to refinance its debt.

The root cause of these economic mess can be traced back to 2008 financial crisis with the collapse ,bailouts & buyouts  of large financial institutions & industrial conglomerates prominent among  them being  Lehmann Brothers , erstwhile 158 yr old US 4th largest investment bank ,buyout of Merrill Lynch by Bank of America  ,Bear & Sterns ( 5th largest US investment bank) by JPMorgan Chase & bailout of Freddie Mac & Fannie Mae ( US largest mortgage lenders) , AIG ( US largest insurance group) ,General Motors & Chrystler LLC ( US largest automobile corporations) by US Federal govt with a massive 700 billion $ bailout fund arising from taxpayers money.

This economic catastrophe in USA was caused due to following reasons :

•  Deregulation of US financial system during Clinton adminstration ( in early 2000) which allowed Banks & Financial institutions to become financially overleveraged to dangerously high levels. Result was a creation of 50 Trillion $ unregulated derivatives market .

• Development &  selling  of complex financial products formed during this period  :

1.  Mortgage-backed securities (MBS) which saw heavy investment due to higher yields it offered compared to Treasury bonds which offered lower returns to investment due to the low interest rate fixed by Federal Reserve.
2. Collateral Debt Obligations (CDO)'s derived from subprime MBS aided by faulty credit ratings by Credit rating agencies  (S&P, Fitch & Moody's & the  subsequent sale of these toxic assets by investment banks around the world .It peaked to 180 billion $ in late 2007.
3. Credit Default Swaps that were bought by Banks & Financial Institutions from insurance companies so as to insure against subprime mortages which ultimately defaulted when Investment Banks ran out of cash and credit in late 2008.

The collapse of the U.S. housing bubble, which peaked in 2007, caused the values of securities tied to U.S real estate pricing to plummet damaging financial institutions globally. Domino effect of this financial crash lead to failure of European banks ,reduction in market value of equities and commodities caused by huge exposure to toxic financial instruments ( MBS & CDO's  purchased in US housing market) bought by European banks & financial institutions.Greece did not escape from the outcome of the financial crisis, even though its EU membership still enabled them to borrow easily in the bond market  at considerably low rates. The burgeoning govt deficit and escalating public debts caused panic spread across investors with worries that Greece might require a bailout if it fails to refinance its €20 billion of loans.

This situation was taken into control & stabilized by following intiatives :

• In May 2010 ,Europe's Finance Ministers approved a rescue package worth €750 Billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF).
• Austerity measures announced by Greek Prime minister George Papandreou by levying higher taxes, budget cuts and public sector wage freeze in February 2010.

Solutions being proposed now by European Finance Ministers are mainly 2 folded:

• Bank Recapitalization - Injecting a fresh module  of capital by European Central banks into troubled European Banks & Financial institutions & increase their safe borrowings to market & restore investors confidence into European Markets.The special purpose investment vehicle, a new propsal being contemplated would buy bonds in the primary and secondary markets which  would attract outside investors and sovereign wealth funds, tapping reserves from countries like China
• ETSF guarantees - A special-purpose vehicle to be run by the IMF as a way to channel loans from countries such as China and Brazil.

 Solutions to Greece in its current scenario lies in the solution to the present  Euro crisis as far as it is the member of Euro Zone i.e if Euro Zone recovers ,Greece will ultimately be able pay off its debt & improve its fiscal problem with time.

 Solutions focusing on 3 main problems (a sovereign debt crisis ,a banking sector crisis and an under-investment crisis) causing the Euro crisis :

Policy 1 - Stabilising the sovereign debt crisis
Institution: The ECB (European Central Bank)

1.1 Tranche/Module  transfer to the ECB
The ECB takes on its books a tranche of the sovereign debt of all member states equal in face value to up to 60% of GDP.
1.2 ECB bonds
The transferred tranche is held as ECB bonds (€-bonds hereafter) that are the ECB's own liability.
1.3 Fiscal neutrality (i.e. no fiscal transfer)
Member states continue to service their share of hitherto sovereign debt now held by the ECB. To do so, each participating member-state holds a
debit account with the ECB which it services long term at the lower interest rates attainable by the ECB as the central bank of the union.Formerly
sovereign national debt transferred to the ECB reduces the debt servicing burden of the most exposed member states without increasing the debt burden of any of the remaining member-states.
1.4 National Debt Reduction.

Policy 2 - Tackling the banking sector crisis
Institution: The European Financial Stability Fund.

2.1 Rigorous Stress Tests
Rigorous stress tests to be conducted centrally (as opposed to by national watchdog authorities) that assume an average haircut of 30% for sovereign
bonds of member-states with debt-to-GDP ratio exceeding 70% and a 90% haircut for toxic paper found in the banks' books.The degree of recapitalisation
necessary for each Eurozone bank should be computed on
the basis of these tests.

2.2 Banks seeking long term liquidity from the ECB
Funded by net issues of Eurobonds subscribed by the central banks of surplus economies and sovereign wealth funds, the ECB can make medium
term large liquidity provisions to the private banks conditional on haircuts onthe existing sovereign bonds in their portfolio.

2.3 Recapitalisation
Re-capitalisation of banks should be short-term, once off and undertaken by the EFSF(European Financial Stability Facility ) rather than a future ESM(european stability mechanism). It also should be in exchange for equity.If a bank cannot raise the necessary capital to meet the re-capitalisation
target computed above, then the EFSF (and later the ESM) should require a swap of capital for public equity in the bank. The finance for this could be
from bonds issued by the EFSF/ESM rather than national taxation. The return on the bonds should come from the dividends on the equity paid to
the EFSF.

Policy 3  European Recovery Programme
Institutions: The EIB (European Investment Bank), the ECB (European
Central Bank) and national governments

3.1 Co-financing the EIB commitment to cohesion and convergence
investments
 The EIB has been remitted to contribute to both cohesion and convergence through investments in health, education, urban renewal and environment, green technology and new high tech start ups .It should maintain a safe borrowing & lending limits to these commitments.

3.2 Extension of the role of the European Investment Fund
It should offer public venture capital for small and medium firms rather than only equity guarantees.