FDI in retail, Government defers it, Industry gives a thumbs-up!

While the Manmohan Singh Government has deferred the implementation of their decision to allow Foreign Direct Investment (FDI) in organized multi-brand retail in India, and is still battling it out with its allies and the opposition, I decided to interact with leading players in the Label and Print-Packaging industry to get their views on how this decision will impact their industry and them. The total size of the Indian packaging industry is estimated to be close to 19 Billion US Dollars with a per capita usage of about 15 US Dollars as against the global market size of over 600 Billion Dollars and 100 Dollars per capita usage. The industry continues to grow at a healthy rate of around 17%. With the expected inflow of FDI in retail, this growth is set to get a further boost. The politicians are adamant that the decision will affect their vote banks adversely because they are convinced that the local neighborhood retailer and the farmers will suffer. Contrary to this, the industry leaders are sure that the FDI decision will benefit the farmers with better prices and that the small retailer will stand to be complemented by the presence of organized retailers. They feel, it will drive rapid growth in the packaging industry. . I sent to them a set of questions to answer. I list below the questions and their response. Unanimously they give a “Thumbs Up” to this decision!

Question: Do you feel that this will drive in a boom in the label and packaging industry in India?



Ramesh Kejriwal, Parkson.





“Definitely!” says Ramesh Kejriwal, Managing Director of Parkson Packaging Ltd. He further adds, “The business will move from unorganized converters to organized ones requiring quality and volumes.” Priyata Raghavan at Sai Security Printers, echoes similar views, “Yes, most definitely! It will drive the demand for packaging not only in volumes but also in quality”.



Suresh Gupta PPL



Suresh Gupta, Chairman and Managing Director, Paper Products Limited, reiterates, “Modern retail certainly drives modernisation in packaging, i.e. increases demand for quality and standardisation in packaging”. Amar Chhajed, Webtech Labels, one of the largest label printers in the country states, “If FDI in retail becomes a reality, it will give a boost in demand for all kinds of packaging including labels”. Amila Singhvi at International Printo-Pac Ltd. feels that the increase in demand due to FDI in retail will make the industry focus on sustainable packing and shelf ready packs. Viresh Sheth of Kris flexipack is of the opinion that the decision will bring funds and technology to the table. Jigesh Dani of Ahmedabad based Mahrishi Labels is sure that it will create lot of opportunities and improve quality of packaging.

Question: Will it impact the local packaging industry in a positive manner?

India is the worlds’ largest producer of fruits (46 million tons) with a global share of over 10% and second largest producer of vegetables (80 million tons) with a global share of over 15%. In spite these achievements, about 20 to 30% of the produce is lost annually due to lack of adequate infrastructure and less use of modern post harvest technologies. Fresh horticultural produce has limited shelf life ranging from a few hours to few weeks at ambient conditions. Packaging is required not only for food preservation and protection but also for safe transportation of products during storage and handling. FDI is likely to bring in technology in cold chain development, supply chain management and Packaging. The growth in the consumer market due to rapid urbanization has also continued to drive growth in packaging. Small converters have been able to grow substantially due to the opportunities coming their way. With limited existing foreign investment in the packaging sector and the expected boost in demand due to the FDI in retail, packaging companies will also expect foreign investments and alliances. The industry leaders feel that the FDI decision will have a positive impact on the industry.



Viresh Sheth Kris Flexipack



Amar Chhajed feels there is no cause for worry as the Indian packaging industry has upgraded to some extent in recent years. Jigesh Dani comments that it will create competition for local venders however still healthy competition is good. Viresh Sheth believes that it will boost demand and packaging companies need to establish pan national presence to service the retailing giants who are expected to invest. Priyata Raghavan is expecting the larger players, playing a dominant role and lot of international packaging companies joining hands with local converters. Ramesh Kejriwal says, “Yes, the decision will make a positive impact but innovative display values need to be built into packages.”

Question: Will it bring in that expected billions of dollars?

“All major global retailers would like to be present in the growing India market and many will invest. Importantly, in addition to retail footage this will mean investment and training in farm to store logistics infrastructure including cold chains, road-rail-water transport systems, etc. Equally importantly is the fact that standards on nutrition, hygiene and safety in the food chain will be strengthened, and productivity improved.” says Suresh Gupta.



Amila Singhvi
IPP



Amar Chhajed, Webtech



Amila Singhvi asserts, “FDI will encourage investment in Indian packaging from multinational players which should be good for the sector as a whole.” Amar Chajjed has expressed thoughtfully, “The first few years will surely see a major inflow of dollars being invested by global retailers to setup stores as well as backend infrastructure. The potential for retail is so huge and untapped in India that it would be a big window of opportunity for most global retailers who are currently experiencing downfall or stagnancy in the developed economies. What needs to be seen is whether this retail boom also translates in boosting the overall manufacturing sector for locally produced goods.” Ramesh Kejriwal is sure that the investment will come. Priyata is not sure if the billions will come however she says, demand will peak before leveling out.

Question: How is the industry geared up to meet this demand?



Priyata Raghavan, Sai Security



“Not really!” says Ramesh Kejriwal “most converters are still using low-end technologies with lot of manual work”. Viresh agrees that the supplier has to be well equipped in terms of technology, quality and presence. Priyata feels that capacity and quality parameters need to be ramped up but good quality of raw materials like paper and board will be a bottleneck for growth. Suresh Gupta is sure that the industry is prepared to scale up to meet the demand as it arises.

Question: Will innovations in packaging become more evident?

“Absolutely!” Says Ramesh Kejriwal. Jigesh Dani is confident that new and innovative ideas will come to shop shelves. Suresh Gupta asserts, “Modern retail formats will certainly drive innovation!” Amila Singhvi says, “Packaging will evolve, we expect to see more of shelf-ready packaging, dispensing options and multi-packs suitable for retail stores.” Viresh agrees, “Packaging being the first handshake with the consumer it will have a significant role in order to break this clutter. This will call for more innovative designs and material”



Bhavin Kothari, Interlabels



It is really interesting to see and realize the confidence of these leading personalities in the field of labels and packaging. Some of these people have grown from a stage where they were just very small start-up ventures and are now large by any standards. The kind of investments that they continue to make has paved the way forward for the Indian packaging industry. The summing up comments of some of them made are quite interesting. Amar Chhajed, “I genuinely believe that the Indian packaging industry has a great future and it must believe in itself. Focusing on Innovation, Value creation and Quality, we can excel against almost anyone in the world.” Jigesh Dani, “Off course as a nation India is emerging very strong and one must not doubt the self sufficiency but if you want it to grow and come out of the shadow, this is welcome step.” Bhavin Kothari of Interlabels, India’s largest label manufacturing company gave interesting comments, “It is very unfortunate that the politicians want not to understand the correct picture. Direct investment in organised retail by the largest corporate houses in India already exists, Tata’s (82billion USD), Reliance (60billion USD), and Aditya Birla (35billion USD). So just because the color of money is different, it is ridiculous to assume there will be problems. The large Indian corporate houses will learn the ropes in matter of time. Further so if any decimation of the ‘kirana’ store is to happen (which I believe will never happen) it will happen without FDI”. Suresh Gupta, “Modern retails will certainly gain market share very fast as it drives much needed modernisation of the retail sector. However, the kirana store will remain the "backbone" of the retail sector, and the Indian consumer will benefit greatly from the "jugalbandi"(duet) between the two formats. Whatever benefits the consumer will benefit the packaging industry” Viresh Sheth, “This will also directly spur infusion of fresh CAPEX (capital expenditure) and high-end technological innovations”



Gautham Pai, Manipal
Tecnologies Ltd.



Gautham Pai, Executive Director of Manipal technologies says," FDI in multi brand retail , in my opinion that is good for the country . The investments in infrastructure , supply chain and technology are long over due .I believe consumers will benefit from a quality , verity and experience perspective . Vendors will benefit from direct sales and efficiency/transparency in the system . Large numbers of jobs will be created . Middle men will suffer . Will boost packaging sector in a big way".



Saket Kanoria, TCPL



Finally to sum it all I got the views of Saket Kanoria, Managing Director of TCPL, “I feel that should FDI in multi brand retail happen, and am sure it will at some point, it will certainly open up lots of doors and opportunities to a host of smaller suppliers who will get access to international chains and give them the potential to scale, as well as export. I think that the political opposition notwithstanding it will be very good for India, consumers and the economy in the long run.” The industry surely has given their thumbs-up for the decision to allow FDI in multi brand retail!

Written by Harveer Sahni, Managing Director, Weldon Celloplast Limited, New Delhi. December 2011