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swadeshi patrika [swadeshipatrika@rediffmail.com] Saturday, July 31, 20106:28 PM V Bhaskar; narain.d; S.Natarajan Response to discussion paper on fdi in muti brand retailing Retail_sector.doc

dear sires) please find attached letter from swadeshijagran FDIin multi-brand retail. yours truely Arun Ojha All India Convenor Swadeshi Jagran Manch

manch in response to the discussion paper on Proposed

SWADESHI JAG RAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-10022 PH. 26184595

To The Secretary, Dept. of Industrial Policy and Promotion, Ministry of Commerce, Govt. of India, New Delhi

Sub:- Views and suggestion Ref:-

of Swadeshi Jagaran Manch on FDR in Multi-Brand

Retailers.

Discussion Paper on foreign direct investment in multi-brand retail trading issued by Department of Industrial Policy and Promotion, Ministry of Commerce.

Dear Sir/Madam, It may be recalled that Department of Industrial Policy and Promotion, Government of India has issued a discussion paper (DP) showing government's intention

to open multi brand retailing for Foreign Direct

Investment (FDI). Views and suggestions have been invited on Section 7 of the paper entitled 'Issuesfor Resolution' apart from any other issues of concern relating

to FDI in multi-brand retailing. The paper calls for views/suggestions backed up by facts, figures and empirical evidence, to be furnished by 31 July, to generate informed discussion on

2010. Although para 1.2 of DP states, "The views expressed in this discussion paper should not be construed as the views of the government. The Department hopes the subject, so as to enable the government to take an appropriate policy decision at the appropriate time", it appears from the DP, the government has tried to support it intention to open up multi brand retailing by the folio wing1. Recommendations of 'FDI IN RETAIL- A POLICY PERSPECTIVE', PREPARED BY FICCI AND ICICI

PROPERTY SERVICES IN FEBRUARY, 2005.

Above mentioned document apart from giving the same familiar argument of 'competition' and 'economies of scale', does not talk about the impact of FDI on employment. It says that FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenario of low competition and poor productivity. It can bring about: Supply Chain Improvement Investment in Technology Manpower and Skill development Tourism Development Greater Sourcing From India Up-gradation in Agriculture Efficient Small and Medium Scale Industries

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR PH. RK PURAM NEW DELHI-lO022

26184595 Growth in market size Greater Productivity Benefits to government: through greater GOP,tax income and employment generation

Though it talks of benefits to government by way of employment generation, it does not spell out the loss of employment due to displacement of small retailers. The study lacks empirical evidence to support its arguments in favour of FDI in retailing. Without any empirical or logical arguments, the report inter alia made the following recommendations: Permit FOI in retail Remove Bottlenecks ln the supply chain Relax 551 Reservation Remove distribution constraints Organize market for real estate Increase land supply
2. RECOMMENDATIONS IN THE MID TERM APPRAISAL OF TENTH PLAN

The paper says that "Mid Term Appraisal of the tenth Five Year Plan made a strong case for FOI in modern retailing as entry of modern foreign retailers through joint ventures in India, would help develop backward linkages to sources of supply and thus develop a domestic supply chain capable of meeting international standards." The papers further says that "Allowing FOI in joint ventures is likely to provide access for domestic suppliers to international retailing which purely domestic modern retailers may not be able to offer." Similar to FICCI and ICICI paper the above mentioned recommendations in the mid term appraisal of tenth plan also lacks any empirical evidence. It also fails to spell out the likely impact of opening of this sector for FDI on employment.
3. ICRIER STUDIES ON:

(i) FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR-INDIA


SECTOR'200B

(2005)

and (ii)

'IMPACT OF ORGANIZED RETAILING ON THE UNORGANIZED

The 2005 study recommended: i. FOI be allowed in retail trade as it would speed up the growth of organized retail formats. ii. Gradual opening of the retail sector over a period of 3-5 years to give domestic industry enough time to adjust to the changes. iii. In the initial stage, FOI up to 49% could be allowed to enable domestic players to enter into joint ventures have access to investment, technological know-how and best management practices while retaining management control. The 2008 study has observed "organized retail, which now constitutes a small four per cent of the total retail sector, is likely to grow at a much faster pace of 45-50 per cent per annum and quadruple its share in total retail trade to 16 per cent by 2011-12.14 However, this represents a positive

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-10022 PH. 26184595

sum game in which both unorganized and organized retail not only coexist but also grow substantially in size. Unorganized retailers in the vicinity of organized retailers experienced a decline in their volume of business and profit in the initial years after the entry of large organized retailers. The adverse impact on sales and profit, however, weakens over time. There was no evidence of a decline in overall employment in the unorganized sector as a result of the entry of organized retailers. The rate of closure of unorganized retail shops in gross terms was found to be 4.2 per cent per annum, which is much lower than the international rate of closure of small businesses. The rate of closure on account of competition from organized retail was found to still lower, at 1.7 per cent per annum. There was competitive response from traditional retailers through improved business practices and technology up-gradation. Consumers definitely gained from organized retail on multiple counts. Overall consumer spending has increased with the entry of the organized retail. While all income groups saved through organized retail purchases, the lower income consumers saved more. Thus, organized retail is relatively more beneficial to the less well-off consumers. Proximity is a major comparative advantage of unorganized outlets." Though the discussion paper gives the conclusions of ICRIERstudy of 2005 and 2008, obviously the discussion paper has not spelled out the methodology of the above mentioned studies. The study of 2005 again lacks the required empirical evidence to support their recommendations, the study of 2008, is based on methodology of sample survey. The methodology and the conduct of survey has been a subject of major criticisms by the experts. (This has been dealt with elsewhere in the present paper.) The discussion paper also gives details of the arguments against FDI in retail sector as given by various reports1. COMMITTEE ON FOREIGN AND DOMESTIC INVESTMENT IN RETAIL SECTOR-90TH REPORT OF DEPARTMENT RELATED PARLIAMENTARY STANDING COMMITTEE ON COMMERCE The Hon'ble Department Related Parliamentary Standing Committee on Commerce, in its 90th Report, on 'Foreign and Domestic Investment in Retail Sector', laid in the Lok Sabha and the Rajya Sabha on 8 June, 2009, had made an in-depth study on the subject and identified a number of issues related to FDI in the retail sector. These included: Labour displacing effects of FDI driven modem retailing Job losses due to predatory pricing strategies of large retailers Disintegration of established supply chains by establishment of monopolies of global retail chains, leading to their control of both ends of the supply chain Inability of retail to boost GOP by itself, it being only an intermediate value added process Disruption of current balance of the economy by rendering millions of small retailers jobless The Hon'ble Standing Committee, in its report on 'Foreign and Domestic Investment in Retail Sector', had, accordingly, made a number of observations/ recommendations related to the subject, which, inter alia, included:

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR PH. 26184595 RK PURAM NEW DELHI-lO022

Non-adherence of provisions of single-brand trading, practicing of product bundling by corporate retailers and backdoor entry of foreign companies into retailing through wholesale cash and carry trading (Page 112) Unemployment due to slide-down of indigenous retailers as a result of FDI in retail, sidelining of consumers' welfare due to predatory pricing by retail giants, leading to their monopolistic position and dictating of retail prices and unduly affecting of farmers due to nonremunerative prices, paid by procurement centers constituted by big corporate. Blanket ban on large domestic corporate houses and foreign retailers from entering retail trade in grocery, foods and vegetables and restrictions on opening of large malls by them for selling other consumer products; reservation policy and extension of financial assistance schemes for expansion and modernisation of small and medium retailers; stopping of issuance of licenses for 'cash and carry' Unemployment created by corporate retail, as unorganised retail provides employment to 40 million people, which accounts for 8% of the total employment Establishment of in-built policy to re-employj re-Iocate people dislocated due to opening of big malls in the vicinity of their shops Preparation of a legal and regulatory framework and enforcement mechanism to ensure that large retailers are not able to dislocate small retailers by unfair means Extension of institutional credit, at lower rates, by public sector banks, to help improve efficiencies of small retailers; undertaking of proactive programme for assisting small retailers to upgrade themselves Establishment of a National Commission to study the problems of the retail sector; Enactment of an Act to protect medium and small retailers Providing a level playing field for small retailers; Analysis of traffic and economic impacts before a store is given permission to open Setting-up of a Retail Regulatory Authority to look into problems and to act as a whistleblower Adequate safeguards to prevent diversion of agricultural land for building malls etc. Enactment of a National Shopping Mall Regulation Act to regulate the fiscal and social aspects of the entire retail sector Formulation of a Model Central Law

Given the observations and the recommendations of the Hon'ble Department Related Parliamentary Standing Committee on Commerce on the subject, it is clear that democratically elected representatives have not only argued against FDIin retail, it has also recommended for protecting the interests of the small traders against the onslaught of domestic organized retail sector. It is unfortunate that the government instead of acting on the recommendations of the Hon'ble Committee of the parliament has chosen to give arguments for opening up of this sector for foreigners against the interests of the domestic small retailers, most of whom belong to vulnerable sections of the society, which includes rehri, potri, khomcno, small vegetable venders among others. The paper of the government clearly

SWADESHI JAG RAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-10022 PH. 26184595

demonstrates insensitivity of the government towards this section of the society, which employs 33.1 million work force, which is 7.2 percent of total work force (as per latest 64th round of NSSO). 2. CENTRE FOR POLICY ALTERNATIVES: 'FDIIN INDIA'S RETAil SECTOR:MORE BAD THAN GOOD?' i. The retail sector is severely constrained by limited availability of bank finance. The Government and the RBI need to evolve suitable policies to enable retailers in the organized and unorganized sector to expand and improve efficiencies. ii. A National Commission should be set up to study the problems of the retail sector which should also evolve a clear set of conditionalities on foreign retailers on procurement of farm produce, domestically manufactured merchandise and imported goods. These conditionalities must state minimum space, size and other details like construction and storage standards. iii. Entry of foreign players must be gradual with social safeguards so that the effects of labour dislocation can be analysed and policy fine tuned. Foreign players should initially be allowed only in metros. iv. Manufacturing sector in India must be developed to address the dislocation of existing retailers.

A critique of ICRIER studies, 2005 Anuradha Kalhan a noted researcher in her research paper published in Economic and Political Weekly, June 2007 has critisised the ICRIERstudy 2005 as follow"ln a survey-based study (A Mukherjee and N Patel 2005) sponsored by Indian Council for Research on International Economic Relations, the researchers make a case for introduction of FDI in organized retail over a period of five to six years to boost the pace at which the sector is growing. An organized retail sector, they suggest, will ensure better quality, prices and service quality to the consumer. It will encourage investment in the supply chain, link local suppliers to large global markets and improve the quality of employment. Their sample of 291 respondents was spread out over 14 types of participants in the retail sector, from domestic organized retailers, real estate developers, foreign players and manufactures to unorganized retailers spread over eight cities. The sample however had only 64 domestic unorganized retailers, 50 workers in the unorganized retail, and no hawkers. Since this sector generates 6 to 7 per cent of total employment in the economy, there is a need to focus some research on the impact of organized retail and FDI in retail on this segment alone and the present study is such an attempt." The study of Anuradha Kalhannoted that "The survey results are presented in Tables 1 to 13. If we exclude the hawkers who have no shop floor area, then 52 per cent of the sample represents shops and establishments less than 300 sq ft in size (Table 1). The most frequent shops in the sample are shops less than 200 sq ft (Table 1). 82 per cent of the shops had an inventory of less than Rs 10 lakh (Table 2). 60 per cent had no employees other than family members (Table 3). The average employment per shop was 3.5 persons; the most frequent

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-10022 PH. 26184595

type of shop had two family members manning operations. So the sample was largely composed of the family-owned small shop. 71 per cent of the respondents reported falling sales (Table 5). In only 18 per cent of the shops/hawkers were the sales unaffected by the large retail chain malls. Only 11 per cent reported an increase in sales (Table 5). These were shops offering products and services not available in the malls, e g, stationery, photocopying facilities, courier services, mobile phone and computer accessories. Some eateries close to the malls reported an increase in sales due to patronage of the mall employees. Most frequently shops reported a 20 per cent fall in sales (Table 6) but the intensity varied by type of product. 64 per cent reported a loss of high value customers (Table 7). Particularly important is the fact that the decline in sales is not limited to grocery stores. Unbranded garment shops, shoe shops and electrical retailers, all seem to have suffered (Table 8). This may lead to deeper questions regarding the changing class composition and shifts in consumption patterns in the vicinity of the malls. It may also indicate the loss of real purchasing power among the classes in the vicinity of the malls that used to patronize unbranded garment and shoe shops. There have been cases of job loss in some shops and establishments. In all nine retailers had fired their staff over the period since the mall came up. In all 11 hired help had been retrenched, which is less than 3 per cent of the original workforce of 401 persons. Hence, despite the sales downturn there has been no significant decline in employment so far. This reflects the family basis of the sector where a decline in sales is not matched by retrenchment but results in shrinking earnings per head. If the downward pressures continue to intensify, some more retrenchments may occur; however, closures seem immanent. Sales decline is evenly distributed by value of inventory up to 25 lakhs (Table 10). The decline in sales has most frequently impacted larger shops in the size range of 40D-500 sq ft and 300-400 sq ft and least commonly the size range of 10D-200 sq ft (Table 9). But the less than 100 sq ft size shops are also frequently affected (Table 9). Seventy-one per cent of the sample reported a sales decline, but only 14 per cent reported some new sales promotion initiatives, due perhaps to the low capital base, low profit margins and poor availability of skilled manpower. Tele orders, home delivery and sales on credit were the main types of new initiatives. Nearly all of them did not advertise at all. However, the shops particularly in Parel, for example, suffered from a shortage of manpower and capital, a result of a narrow and deteriorating working capital base. Parel is particularly badly affected because of the loss of high value customers like mill workers. As the mills closed down one after another the shops and eating places lost their clients. The new real estate development in the area has brought corporate offices, and with these a new class of people whose preference patterns and needs are unfamiliar. Despite the falling sales, 96 per cent of the retailers have not increased their working hours. The main reason is once again an inability to afford additional hired help while the existing workers, mainly family members, are already working for 11 to 14 hours per day. Hence, there seemed little scope for additional man hours or work intensification. Sixty-three per cent of the sample said that they felt threatened by the malls (Table 13). 16 per cent of them felt threatened with closure, 34 per cent feared a major decline in business and 13 per cent expected a minor decline (Table 1, 3). So 50 per cent of the sample was expecting serious trouble.

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-10022 PH. 26184595

82 per cent said that their children would not continue with the business. Yet only 11 per cent of the sample of 112 shops/hawkers was involved in a campaign against the malls. It would be useful to compare the two areas where malls have been around for an adequate period of time, like in Parel and in the Bhandup/Mulund area. Nirmal Lifestyle is close to Bhandup, R Mall is in Mulund. Nirmal is two years old and R Mall is three years old. Phoenix Mall in Lower Parel is four years old. There were 53 respondents (retail shops and hawkers) in the Bhandup-Mulund area (1 km radius area around the two malls). In this area both malls are not more than three years old. There were 46 respondents from the Parel area where the mall is at least four years old. All respondents were asked to recall and evaluate their sales since the mall started in their respective area. The Bhandup and Lower Parel area responses have been summarised in Tables 14 and 15 respectively. In Lower Parel, 89 per cent of those who reported a drop in sales recorded a decline in sales in the last four years itself when the mall was in operation. Within this category of people who date their decline in sales over the last four years, 61 per cent said they experienced decline in the last two years, which may possibly indicate an intensification of impact over time. This can be viewed against 5.6 per cent of respondents reporting the drop to the period when the mall did not exist. In the Mulund/Bhandup area, figures were respectively 93 per cent reporting a sales decline, and within this category, 75 per cent said the decline occurred in the last two years. The two malls are less than three years old. Only 4.5 per cent of the respondents in the area dated their decline in sales to the period when the malls did not exist. Hawkers are at the bottom of the retail pyramid, on the streets, readily available and handy for customers. They are a feature of all urban spaces globally. Municipal authorities have fought battles to evict them, but with little success. Street trading is one of the points of entry for migrants into the working life of the city; it is also one of the traditional supplementary activities of the families of the working poor, particularly for women. The number of hawkers in Mumbai is estimated at two and a half lakh. But the number of unlicensed hawkers has been rising steadily since the Municipal Corporation in Mumbai has officially stopped issuing licences since 1978. Our sample of 30 hawkers was located within a safe distance of the malls in Parel and Bhandup-Mulund areas. Mall developers have been particularly hostile to hawkers. 72 per cent of them had no co-worker to help them, while about 21 per cent had another person, usually from the family, to help them. Hawkers, particularly women and children, are predictably at the receiving end now, facing increasing eviction drives and harassment around the malls. 41 per cent reported an increase in eviction drives, 24 per cent in harassment by agents of the malls, while 17 per cent reported an increase in bribes and hafta (Table 12). Mall promoters have joined the conflict to evict hawkers and revamp their precincts. 72 per cent of the hawkers were experiencing a fall in sales and all reported falling profits, which means falling income for them."

Distribution of Sam Number 30

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR PH. 26184595 RK PURAM NEW DELHI-lO022

8 100 sq ft 100-200 200-300 300-400 500-600

More Total Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

14 25 22 10 6 4 112

13 22 20 9 5 4, 100

Table 2: nistrlbution 0fS ample I Sh ops /H aw k ers b)v V a Iueo fI nventorv


Rs Lakh Number of Shops/Hawkers Per Cent of Total

<1

1-5 5-10 10-20 20-50

More than 50 Total Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

7 44 41 16 3 1 112

6 39 37 14 3 1 100

Table 3: S amnie I Sh ons /H aw k ers 'S ta II s P attern 0fE mni ovment ID Per Cent of Total Number of Shops/Hawkers Stalls
Self-employed family 60 members only 67 Family members and employees 40 45 100 Total 112 Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 4:
DiIS t rr ib u ti I men tbt)y P ro duc tT rvne Ion 0fE mptot Family Employees Shops/Hawker's Business Type Stalls Members
ID

th e S amp Ie Sh ops /H aw ~ ers


Average Number of Family Members Per Establishment Average Number of Employees Per Establishment

Grocery Vegetables, fruits Processing food

30 5 18

62 7 23

32 0 83

2 1 1

1 0 5

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-l0022 PH. 26184595

Garments Shoes Electronics Electrical Others Total

14 6 2 1 36 112

32 12 2 1 57 196

15 2 4 2 56 194

2 2 1 1 2 1.8

1 0 2 2 2 1.7

Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 5: a .pera Ions Summar VO fS a Ies P er ~ormance smce th e St a rt 0f MilO Per Cent of Total Number of Shops/Hawkers Sales Level 18 Remained the same 20 11 Increased 12 Declined 71 80 100 Total 112
Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 6: Ions IDe ID E xt en t 0fD ec r in Sa Ies 0fS ample Sh ops IH aw k ers smce th e St a rt 0fM a II 0ipera ti Per Cent of Total Sales Decline (Per Cent) Number of Shops/Hawkers Stalls

< 10 10> < 20 20> <30 30> < 40 >40

23 28 23 23 5 102

22.5 27.5 22.5 22.5 5 100

Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

P a t ronage 0 fH'hVI 121 Patronage of High Value Customers Number of shops/ hawkers reporting Per cent of shops/ hawkers reporting

Table 7: )y th e S ample I Sh ons IH aw k ers D ue t 0 MilO a mera tlIons a ue C us t omers b Up Same Down

7 6

41 37

64 57

Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Sales Decline of ShopslHawkers

Table 8: by Business Type as a Result of Mall Operations

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-10022 PH. 26184595

Business Type

Grocery Vegetables, fruits Processing food Garments Shoes Electronics Electrical Others Total

Number of Shops/ Hawkers Showing Sales Decline 26 5 8 12 5 2 1 21 80

Total Number of Shops/ Hawkers 30 5 18 14 6 2 1 36 112

Per Cent of Shops/ Hawkers Showing Sales Decline 87 100 44 86 83 100 100 58 71

Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 9: I Sh oPS/H aw k ers b )V Sh OP S a 'peratlODS lZe as a R esu Ito fMIIO SID a es ec r meo fS ample Number of Total Per Cent Size of Shops/ Number of Shops/ Hawker's Stalls Shops/ of Shops/ Hawkers (sq feet) Hawkers Showing Showing Hawkers Sales Decline Sales Decline 74 Tiny < 100 31 23 14 35 100-200 11 52 13 25 200-300 22 82 300-400 18 10 90 400-500 9 6 67 500-600 4 >600 4 50 2 112 71 Total 80
Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 10: SID meo fS ample I Sh ops /H aw k ers by Busmess Inventory Size as a Resu It 0fM a II 0merattons a es ec r Number of Per Cent Inventory (I) Total Number of Shops/ Shops/ as on of Shops/ Hawkers (Rs Lakh) Hawkers Showing Showing Hawkers

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR PH. 26184595 RK PURAM NEW DELHI-lO022

<I 1<1<5 5 < 1 < 10 10 < 1 < 25 25 < 1 < 50 I> 50 Total

Sales Decline 5 31 29 13 2 0 80

7 44 41 16 3 1 112

Sales Decline 71 70 71 81 67 0 71

Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 11: , th e M a IIs b Di P ercennon ti 0fE cononnc isa d van t age VIS-a-VIS y th e S ample I Sh ops /H aw k ers Compared to Malls 'Yes' 'No' Per Cent of Total Responding 'Yes' Cost price is higher 24 88 21 Transport and handling cost is higher 9 103 8 Taxes are higher 58 54 52 Selling price is higher 26 86 23
Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 12: Attitude of the Public Authority towards Sample Hawkers 'Yes' 'No' Per Cent of Total Responding 'Yes' Hafta 5 24 17 Harassment by agents of the malls 7 22 24 Eviction 12 17 41
Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Note: All the 29 hawkers have been in the vicinity of a mall for two to four years.

Table 13: Extent of Threat Perceived b Sam 'Yes' 'No'

s/Hawkers Per Cent

SWADESHI JAG RAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DElHI-lO022 PH. 26184595

Feel threatened? Nature of threat: Closure Maior decline Minor decline

71 18 38 15

41

of Total Responding 'Yes' 63 16 34 13

Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 14: Summary of Sales Response of Sample ShopslHawkers Dhan dup Numbers Decline in sales 44 No change in sales 8 Increase in sales 1 Total 53

since the Start of Mall Operations in Per Cent 83 15 2 100

Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Table 15: Summary of Sales Response of Sample ShopslHawkers since the Start of Mall Operations in Lower Parel Numbers Per Cent Decline in sales 28 60.9 No change in sales 9 19.6 Increase in sales 9 19.6 Total 46 100
Source:Anuradha Kalhan ,Economic and Political Weekly, June 2007

Critique of ICRIER study 2008:


It seems that ICRIER is obsessed with the idea of proving in one way or the other that FDI in retail is good for everybody in the country and there is no need to worry about the possibility of danger to employment of the existing small retailers. For that purpose, even a reputed research organization like ICRIER is indulging in statistical jugglery to prove there point. This is proven from the fact that when ICRIER was asked to study the likely impact of FDI in retail trade of small retailers it tried to 'create' inferences of their choice by manipulative use of statistical tools. It may be noted that ICRIER was asked to make recommendation about opening up of FDI in retail sector for whole of India. We understand that this sector employs about 40 million people,

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DHARM KSHETRA SHIV SHAKTI MANDIR PH. 26184595 RK PURAM NEW DELHI-10022

who are either running their small shops, or running their mobile retail business by way of rehri, patri, khomcha etc. or are employees of the shopkeepers. Though the ICRIER claims the study to be the largest ever survey of all segment of the economy that could be affected by the entry of large corporate in the retail business, the sample chosen by ICRIER was too small to be representative sample. For instance ICRIER study took a sample of only 2020 number of small retailers, 1318 consumers, 197 farmers and 100 intermediaries. In addition to that ICRIER claims to have interviewed 6 establish corporate retailers, 12 large manufacturers and 20 small manufacturers. On the basis of the said survey the report concludes The rate of closure on account of competition from organized retail is at 1.7 per cent per annum. Unorganised retailers in the vicinity of organized retailers experienced a decline in their volume of business and profit in the initial years after the entry of large organized retailers. But the report says that the adverse impact on sales and profit weakens over time.

Still the report concludes There was no evidence of a decline in overall employment in the unorganized sector as a result of the entry of organized retailers. There is some decline in employment in the North and West regions which, however, also weakens over time. The Report itself concedes that its scope is limited given the size of the sample of farmers. Apart from the small size of the sample the report suffers from the following short comings1. While choosing the sample, instead of random sampling technique the unorganized retailers were chosen in consultation with 'key informants and knowledgeable retailers'. 2. Not only a very small sample of 197 famers was chosen, the sample was biased. The report itself suggests about the increased income of the farmers producing cauliflower. This nation produces different variety of agriculture products and any sample of farmers producing a particular kind of product can not be representative sample. No reason whatsoever has been given by ICRIER for choosing lop sided sample. 3. While collecting information about the closure of small shops in the vicinity of organized retailers, again the research team of ICRIER depended upon the residents of the area, rather than the shopkeepers themselves. 4. ICRIER based their conclusion about the impact of organized retailing on small retailers from the experience of domestic organized retailers. And the report says that their conclusions would be the same with regard to foreign retailers also. It is well known that domestic organized retailers in India were in experienced and also had limited resources to work with. But this is not the same with multinational organized retailers like Walmart, Carrefore, Spencers etc. They have the experience of how to kill the competition and push out the established small retailers from the business, by way of predatory prices, financial muscles

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DHARM KSHETRA SHIV SHAKTI MANDIR RK PURAM NEW DELHI-lO022 PH. 26184595

and international procurements. Therefore ICRIER study fails to take note of the ill practices of the international players. The experience world over shows that the international players have out flushed the small retailers every where in the world. This is proven from the fact that they hold majority share in US and Europe and heading towards majority share in Brazil, Thailand, South Korea and many other countries as shown from the following table-

Table. 16 . . d re talTIn21nre tal'1 b usmess 0f dfti Sh are 0 fO r2amse I eren t coun tries Country Share of organized retailers America 80 England 80 West European Countries 70 Brazil 40 Thailand 40 Korea 35 China 20 Malaysia 20 India 04

ICRIER 2008's recommendations and conclusion suffer from the same problems as has been listed above about ICRIER 2005 report. It seems that ICRIER has reasons best known to them to open up retail sector for FDI. But even if we go by the conclusions of ICRIER 1.7 per cent small retailers will face closure annually, which means about 10 per cent shops will be closed in 5 years.

Misdirected Argument of Strengthening of Supply Chain, Warehousing and Storage


It is unfortunate that to legitimize the entry of the multinationals in Retail Sector, the department is taking the shield of lack of storage facilities for agriculture produce. Is this not the responsibility of the government to either create this storage capacity on its own or encourage private sector to create this by way of subsidies, fiscal concessions or other incentives. In the lat more than sixty years after independence, the government has failed miserably on this front. Government has no right to penalize the small retailers for no fault of theirs. The paper gives an argument that creation of this infrastructure requires an investment of rupees 7687 crores and therefore we need FDI in retail, so that multinational retail giants would create this infrastructure. This argument is not tenable. In a country where the size of annual budget is more than 11 lakh crores, for this small investment of merely 7687 crores we can not legitimize the death warrant for small retailers, especially when they are not at fault.

Demand
Given the flaws from which the arguments for opening up retail of FDI suffer, there is no point for even discussing this issue. As per the Hon'ble Department Related Parliamentary Standing Committee on

SWADESHI JAGRAN MANCH


DHARM KSHETRA SHIV SHAKTI MANDIR PH. 26184595 RK PURAM NEW DELHI-10022

Commerce, the government so far has failed to support small retailers. They still have to borrow at exorbitant rate of interest. They face harassment from the authorities, apart from other problems. A national commission should be setup to look into the problems of 40 million small retailers. Any attempt to open retail sector for FDI (multi brand retailing). The government should not forget that after the new economic policy has been adopting and multinational companies have been allowed to enter different sectors of the economy, rate of unemployment (current daily status) has risen from about 5 percent per annum to 8.28 percent per annunf'(Sl" round NSSO). This act of the government would send millions of people out of ~2Y!J1ent. The argument given in the report that in the new format existing retailers could be rehabilitated is ridiculous as everybody knows that the existing small retailers can not be employed in the malls in any respectable manner. The government will be considered insensitive to problems of poor retailers like rehri, patri, khomcha and small shopkeepers if it opens up retail sector for multi brand retailing by foreigners. Swadeshi Jagaran Manch strongly condemns the contents of the discussion paper showing the intention of the government to open retail sector for FDI and demands that this discussion paper be withdrawn with immediate effect. Swadeshi Jagaran Manch also demands that the discussion paper be published in hindi and all regional languages, to enable all the stake holders to understand the implications of change in policy of the government towards FDI in retail. Even this discussion paper was published by the government on 6th July 2010 and only 25 days were given to respond. This time is too little to respond, given the size of the implications on the economy in general and small retailers in particular. Yours truly

Arun Ojha All India Convener Swadeshi Jagran Manch

deepa-k narain
From: Sent: To: Cc: P.G. Department of Commerce marian college kuttikkanam [marianmcom@gmail.com] Saturday, July 31, 2010 10:31 PM V Bhaskar; narain.d; S.Natarajan jamesjkm@yahoo.com; listin thomas; rajruble@yahoo.com; jayamjacob@gmail.com; selvingeo@gmail.com; hellobharathi@gmail.com; P.G. Department of Commerce marian college kuttikkanam Feedback From Marian College Kuttikkanam, Kerala FDIIN MULTI RETAILlNG.doc

Subject: Attachments:

Dear Sir,

Greeting from Marian College Kuttikkanam!

Marian College Kuttikkanam is a Government aided college, managed by the Catholic Diocese of Kanjirappally and is affiliated to Mahatma Gandhi University, Kottayam. The college is accredited by NAAC with' A' Grade and recognized as "College with Potential for Excellence" by UGC. It is located in the high range of Idukki district by NH 220 road, 70 kms away from Kottayam and 30 kms from Kumily. The Marian M.Com-PGDIM programme is all about preparing the right workforce for the industry. The programme produces financial specialists who are proficient in communication and computer skills with the value addition of sought after Industrial Certifications. Marian M. Com-PGDIM programme creates new milestones every year in academic results, placement records and the career growth of former students. As the DIPP has invited a discussion paper on FDI in Multi Brand Retailing. We, the second year post graduate commerce students of Marian College, Kuttikkanam made a discussion on this subject. We thirty students of our class divided into different groups and made a detailed study on this topic. After the study we presented our findings and a debate was conducted on its advantages and disadvantages. Our findings shows that lOO%investment in multiband retail sector is going to make a robust development in the agriculture sector and also develop our economy. Even after globalization the condition of agriculture has not improved. The expert studies have ranked India as the most attractive retail destination. FDI is an important constituent of the globalization efforts of the world economy. FDI in Multi Brand Retailing we analyzed through a SWOT analysis .JIl*se.'$ee tile Attachments for detailed presentation

Kindly acknowledge the receipt of the mail. We are eagerly waiting your replay for further discussion and analysis.
1

Warm regards Students From P.G. Dept Of Commerce marian college kuttikkanam Kuttikkanam P.O., Peermade Kerala State INDIA Mob:09048504252

- 685531

Marian College Kuttikkanam is a Government aided college, managed by the Catholic Diocese ofKanjirappally and is affiliated to Mahatma Gandhi University, Kottayam. The college is accredited by NAAC with 'A' Grade and recognized as "College with Potential for Excellence" by UGC. It is located in the high range of Idukki district by NH 220 road, 70 kms away from Kottayam and 30 kms from Kumily. The Marian M.Com-PGDIM programme is all about preparing the right workforce for the industry. The programme produces financial specialists who are proficient in communication and computer skills with the value addition of sought after Industrial Certifications. Marian M. Com-PGDIM programme creates new milestones every year in academic results, placement records and the career growth of former students. As the DIPP has invited a discussion paper on FDI in Multi Brand Retailing. We, the second year post graduate commerce students of Marian College, Kuttikkanam made a discussion on this subject. We thirty students of our class divided into different groups and made a detailed study on this topic. After the study we presented our findings and a debate was conducted on its advantages and disadvantages. Our findings shows that 100% investment in multiband retail sector is going to make a robust development in the agriculture sector and also develop our economy. Even after globalization the condition of agriculture has not improved. The expert studies have ranked India as the most attractive retail destination. FDI is an important constituent of the globalization efforts of the world economy. FDI in Multi Brand Retailing we analyzed through a SWOT analysis

SWOT ANALYSIS FOR FDI IN MBR


Strength

Development of logistic of the retail chain. Setting up of retail in front end and back end. Technological and management know how. Development of agriculture sector and rural economy. Employment opportunities. Boosting of export. Market growth. Reduction in operational cost. Helps in maintaining sick retailers. Avoiding intermediaries. Promote investment in rural sector. The sectors will be fully organized.

Weakness

Fears of adverse effect on existing retailers and small Kirana stores. Affect middle income family. Cut throat competition. Unorganized retailing. Required huge investments ( for domestic companies) Resistance to change

Opportunity

Micro finance. Shopping destination. Innovation through competition. Advanced technology and reduction in food wastage. Accelerate capital inflow. Boosting of aviation sector. Changing life style. Attract investors. Attract more FIls. Exploring Indian business giants. Strengthening the PDS system.

Threat

Hindrance for new entrepreneurs. Dumping of low quality product. Lack of infrastructure. Quality standards. Threat to Indian products. Higher price. Create Monopoly

# Overall FDI- In Multi Brand retailing will help the economic development to our country. At the same time we should have enough administrative policy to control the weakness and threats

Beneficiaries
Customer
Quality products at reasonable price. There will be an international range of products to choose. market for com panies and consumers with a wide

Farmers
Farmers get the proper benefit by avoiding intermediaries Farmers are enabled to adopt new technologies in farming Provides warehouse facilities to preserve the agricultural products

Logistics and supply chain management


An increase in export and import will have immediate improvement and supply chain management. Transportation, warehouse, ERP, infrastructure also get boom in logistics

Capital market
Stability of market Free flow of Capital and new investors

Banking sector
Reduces non-performing assets Improved financial transactions

Youth
Employment opportunity dividend properly

Canalizes the human capital & demographic Changes in lifestyle

Thinks to be ensure

~ A national Commission must be established to study the problems of the retail sector and to evolve policies that will enable it to cope with FDI- as and when it comes up. ~ Ensure sufficient administrative policy before implement FDI in MBR ~ These conditionalities must be aimed at encouraging the purchase of goods in the domestic market, state the minimum space, size and specify details like, construction and storage standards, the ratio of floor space to parking space etc. Constitute a Federal Agency for controlling the activities ofFDI in multi-brand retailing. Agency should be constitute by Prime minister and the Ministry of Commerce and Industry Set up Quality Standards for products sold through these retail outlets Set the cost of entry high and according to specific norms and regulations so that the retailer cannot immediately indulge in 'predatory' pricing Ensure employment opportunities to local people Restrict the dumping of low quality products from other countries Safeguard the interest of farmers Ensure the existence of small retail shops Ensure that necessary stock is to be reserved for Public Distribution System

~ Initially allow them only to set up supermarkets only in metros. ~ Quality regulation, certification & price administration bodies can be created at district and lower levels for upgrading the technical and human interface in the rural to urban supply chain. ~ Ensure the proper infrastructure development takes place ~ Ensure the proper consumption of local resources and materials ~ Proper awareness should be given to the farmers and the small retailers before the introduction ofFDI

We need to answer the below mentioned Questions

before implementation?

1. What are the measures to be taken to control the price and quality? 2. Do we have enough infrastructure facilities to tape the advantage of the new move? 3. How to ensure the safety of 10 corer SME and their livelihood? 4. What is the level of transparency? 5. How can we ensure the balanced economic growth? If we concentrate FDI in Multi Brand Retailing in metros only? 6. How can we safeguard FDI-in Multi Brand Retailing from political involvement?

Conclusion: FDI-in Multi Brand retailing is going to make a robust development in the retail sector and also our economy growth. Provided the Govt. & DIPP set

proper administrative polices. We are strongly support Govt. and DIPP for FDI-in Multi Brand Retailing.

FROM

FICCI

FAX NO.

23765316

Jul. 31 2010 02:33PM Pi

Federation of Indian Chambers


of Commerce and Industry

31.07.2010

Shrl V. Bhaskar Joint Secretary Department of Industrial Policy & Promotion Ministry of Commerce & Industry New Delhi

Dear Sir, At the onset, FICCIwould like to thank OIPP for the discussion paper on retail. After consultation with our stakeholders, we are happy to send you our comments on the same.

We would be very happy to meet you in person and discuss them with you. I am available on
+919910139000 for any assistance you desire.

Best Regards,

Sameer Barde Assistant Secretary General FICCI

FROM

FICCI

FAX NO.

23765316

Jul. 31 2010 02:33PM P2

FOREIGN DIRECT INVESTMENT (FDI) IN MUlTl-8RANO RETAIL TRADING

Fleel RECOMMENQATIONS

Submitted to: Department of Industrial Policy & Promotion (DIPP) . Ministry of commerce & Industries (Government of IndIa)

New Delhi

F~OM

FICCI

'-

FAX NO.

23765316

Jul. 31 2010 02:33PM P3

. -~ don, on ED. in Multi Brand R'bH 1) Should FD' in multI brand reta, b If I e permitted? If so should so, What should this cap be? ' a cap On investment be imposed? . create a synersic relationship bet policy process IS strategically done it can ' ween small and large retail ch' I d' ' model, based on its own reatrties to d 8ms. n la can develop Its Own wa~ s moderni:zation of this ter I . To realize the fuJI potential of ent~ of MUltibrand .. . sec or In a calibrated manner. range of 49-5196and the conditions should t b retail 111 India, FOI should be allowed in the no e too onerous. t,so, it

eca Racommendat.

FOI In multibrand retail is a welcome move. If the'

;5

proposed that all .retail~rs entering India should be given a target to achieve a certain

eve 0 expo~ out of India. Thls would directlv boost economy, exports, GOP, Job growth & IOfrastructure Investments. 2) ~o develop the retail trade in food lrains, other essential commodities and multl.brand retail In leneral; should FOI be leveraged for creating back-end infrastructure? To ensure that foreign Investment makes a genuine COntrIbution to the development of infrastructure and logistics, should it be stlpu'ated that a perc::entaleof the FDI coming in (say 50%) shOUldbe spent towards bUilding up of back end infrastructure, logistics or airo proc::essinc? leveraging FDI for creating effective back- end Infrastructure Is a welcome sugsestion. Considering the amount of wastage across the entire agri supply chain, it becomes imperative for the retailers to make adequate Investment in the backend infrastructure. Also, to make front end of the supply chain effective, investment In back end Is a must. Infact lot of players in the past had done huge Investment In colledion, gradins & sorting to build backend infrastructure. Until & unless backend infrestructure is Improved, it will be diffiCUlt to control galloping Inflation. Therefore, it is a welcome suggestion; however the percentage of investment can be rationally decided.
3)

It Is necessary to en,;ourale only genuine players in this sector and avoid a Situation where retail outlets are run through working capital support from financial institutions. Should a minimum threshold limit for Investment In backend infrastructure loaistics be flxed? If so, what should this financial threshold be? It is very important to encourage genuine players in this sector who will not only bring in huge investments but also lot of expertise which would help in establishing effective backend and front end infrastructure. Whilst there could be a minimum threshold limit for investment in backend infrastructure, the Govemment should properly define a time frame for these investments to happen.

4} To develop our rural sector, shOUldconditionality's be put on the FOI funded chains relating to employment? For example, should we stipulate that at least 50% of the jobs in the retail outlets should be reserved for the rural youth?

FROM

FICCI

FAX NO.

23765316

Jul. 31 2010 02:35PM P5

We are still awaiting inputs on this from the Industry 9) What additional steps should be taken to protect small retailers? Should an exclusive lelal and regulatory framework be established to protect their Interests? Is a Shopplna Mall Regulation Act required? Does this require intervention at national level or Should this be left to the States? Instead of Retail regulatory authority, there should be a Retail Promotion Authority with roles, responsibilities and accountability clearly defined. Retail sector is already burdened with plethora of legislations, so this authority should act as a facilitator of retail sector to promote Indian retail sector at the global platform. Also, in place of a Shopping Mall Regulation Act, comprehensive National Retail Act could be in place which could act as a model law for the sector with various provisions. 10) The present publie distribution system provides a valuable safety net to vulnerable sections of society. To ensure that the intelrity of the PDSsystem is not weakened and buffer stock is maintained at the desired level, should Government reserve the right of first procurement for a part of the season or put in place a mechanism to collect a certain amount of levy from private traders in case the level of buffer stotk falls below a certain level? This suggestion is agreeable and Government should carry on witlrthe reforms in processfor

PDS.
11) How shoUld compliance be ensured with the above stipulations? Should a centralized alency, to be nomInated by the State Governmentsconcemed, be empowered to arant permissions to every outlet to be opened? The onus of proving compliance with these conditions could rest with the concerned retail chain. The chains c:ould submit an annual statement to such State Government agency providing proof of complianee. Should this agency be empowered to monitor compliance of the present cash and carry outlets too? A centralized agency, nominated by the State Governments concerned, being empowered to grant permissions for the opening of outlets is an impractical suggestion, given the realities associatedwith the number of licensesand the type of laws they come under. 12) The penalty for non compU:anc;e could Include cancellation of approvals as well as denial of future permissions for such activities. What additional penalties could be levied? Should civil penalties be Imposed? Or criminal? Or both? Any penalty for non compliance should be commercial in nature and should be practical and enforceable. At the same time, it should act as a deterrent for non compliance.

FROM

FICCI

FRX NO.

=======-------Special privilege for em I . paYment In retail outlets should b Income level Bnd not On the basIs f . e given on the basis of education and retailers traIn 10th and 12th fa'l d 0 geosraphlcal location. 'nfact, most of the organized technIques necessary to make t~ e stud,ents to properly equip them with required skills and em emp oyable Indeed many r t ./ series of skill upgradation activities w'th . , e al ers are actively engaged in Furth ,.. I support of few state governments, er reserv ng Jobs on the bas/ii of r rib d" ImplementatIon issues as well as migratioUn~~~~,::s.lVlde would be impractical as it has many

23765316

Jul. 31 2010 02:34PM P4

liIDl

5) Similarly, to develop Our SME sector throuch local 5Outeine. should we 5tlpulate that a minimum percentage of manufactured products be sourced from the SMEsector in 'ndla?
It is proposed that there could be a stipulated minimum percentage of manufactured
~o ~e sourced from SMEs. However, it should be left to the Government "mIt. Also considerins the state of SMEs, there should be series of initiatives private organizations for standardizing, Products to fix the percentage by both Government &

upgrading, & improving manufacturing

capacity of SMEs, Also the

so that they can become globally competitive and meet International standards. existing schemes with regard to upgradation ofSMEs should be linked to these,

6) How be5t can small retailers be integrated Into the upgraded value chaIn? Can they be proVided access to the .logistics/ s~pply chain set up by the FDIfunded retaifers? Should it be stipulated that a mInimum percentage of the latter's sales should be made to retailers throu,h special wholesale windows?
cash & carry retailers are already playing a major role in Integratin, Cash & Carry formats retail practices. the entire food value chain. would be a big way to bring small retailers into the stream of organized

7) As part of a calibrated r.form process, should foreicn investment. for sueh stores be initially allowed only In cities with population of more than 10 lakhs (2001 cen5us)? As there may be difficulties faced with regard to availability of real-.estate In Such cities for settin, up such ventures, should an area of 10 kms around the municipal/urban agglomeration limits of such cities be Included within the definition of the city?
There should be no cap on the entry of foreign Investment after considering the commercial and economic viability in terms of population of a place, a retailer less than of a city. Only will take its

decision to enter C1ny city. Also, by restricting FOI only to cities with more than 1 million people, one is deprivin, the residents organized retailing. of the towns with population

1 million benefits of

8) Willany of the conditionalities mentioned above be InconSistent with our commitments under the agreement on TRIM at WTO? If not, to ensure national treatment, can such conditionalities be extended to all retail Chains In India above a certain size? Will such extended conditionalities be consistent with Article 301 of the Constitution?

;t:!!!Pak narain
FI''''Jl:

Sent: To:
SUbject:

vijayatraders@sancharnet.in Sunday, August 01,201012:54 AM V Bhaskar;narain.d; S.Natarajan Feedback on FDI

Dear Sir, We have given below the feedback on "FDI in Multi-Brand note it. Retail Trading". kindly

Mahatma Gandhi says "If a country is accustomed to unlimited foreign competition, it will lead to famine and the situation will help the foreigner to make the country slave. This is otherwise said as entering cunningly~. Our country has diversified business sectors like vegetables, fruits, pulses, grains, coarse grains, herbs, plants, country drugs, spices, garments, stationeries, ornaments etc. Businesses are done by different people. Money given by consumer for a food product, benefits many people starting from farmers, land lords, agriculture machinery industries, transport sector, to businessmen [Wholesale & Retail] and the workers in the above sectors. Government gets income through commercial taxes, income taxes and other direct & indirect taxes. Money spent in India will only revolve in India through various people in above said sectors. If Foreign Direct Investment [FDI] is permitted, income will be earned only by foreigner & foreign companies. The total profit goes only to foreign people. The Indians and Indian companies have to lose. In a tree, the water is supplied to all parts of the tree from the roots. If any cut in root will affect all parts. Similarly wealth in our country is passed to all people in our country only. But FDI cuts the root and the wealth is passed to other place i.e. foreign. Also the foreign company sectorls marketing strategy is not fine. They start their business by giving tremendous offers & discounts until the competitors get disappear. Once they are disappeared, they show their real strategy. They start to sell their products in the rate fixed by them. Anyhow people have no way other than buying it. This is the fact and a well known example is the soft drinks sector which is now dominated by foreign companies. If Indian people are losing their businesses and jobs, what will be the livelihood of our people? Then what is the use of Small Industries Service Institute [SISI], District Industries Centre [DIC], Small Industries Development Corporation [SIDCO], Small Industries Development Bank of India [SIDBI]. Do you want the Indian entrepreneurs to lose their business and work for foreign company? If a worker looses his job he may enter into illegal activities. Medically, it is healthier to consume food products home grown. If FDI is permitted, imported foods will dominate the market and it is not safe to our people. Some of the real examples are imported chocolates from china, unspecified expiry date food products. So, I conclude FDI in retail trade affects all parts of people and kindly donlt allow the FDI in retail sector. Thanking you. !! Jai Hi.nd']

bYJ X.SarangapaniJ s. Chandrasekar J [M()'bers of Coimbatore Maligai(grocery) 641001. Tamilnadu.]

Merchants AssociationJ 11SJ Karuppaiyah streetJ Coimbatore -

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