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Column : Kiranas are here to stay, and grow

Even if Big Retail has a 20% market share by 2021, kiranas can grow sales another $223 bn & employment 40%.

The shrill debate (noises?) relating to foreign direct investment in the retail sector has now reached a crescendo. The various players?politicians, economists, academics, industry?s wise men and women, and other assorted commentators?who have been arguing ?for? or ?against? the same seem to have (knowingly or unknowingly) become participants in playing out of this theatre of the absurd. What started off about 15 years ago as a mere difference in ideology (support ?for? or ?against? corporatisation of retail, and subsequently FDI in retail activity) has now regressed to becoming a major political minefield and, ironically, may end up mortally wounding the UPA-II in its quest to stay in power. The supporters of FDI tout it as the panacea for many ailments such as farmer poverty and suicides, and raging inflation, especially that of food products, which is the scourge of hundreds of millions of hapless poor and fixed income consumers across various lower and middle income classes. Those who oppose it believe that FDI has the same destructive potential for India and the Indian economy as wars, famines, and plagues in the centuries that have gone by. Both sides have been extremely economical with facts and truths, and many on either side of the FDI-induced cacophony are now trying to buttress their position with absolute fiction.

If ideology and political rhetoric is kept aside, and the facts and ground realities specific to India examined closely (without focusing much on Thailand, China, the UK, the US or South Sudan for that matter), it would emerge that at least over the next 10-15 years, there would be no losers at all from modernisation and corporatisation (including foreign-capital-assisted or foreign-owned) of retail trade in India. Indeed, even those whose minds worry and hearts bleed for the well-being of the hundreds of thousands of middlemen of all kinds can take comfort in the fact that the numbers and business of such middlemen will only increase in the next 10-20 years and they can continue to profit (and continue profiteering) from whatever services they perform towards bringing the farmer and other producers to the final consumers.

Likewise, many of those who believe that this heroic act of policy reform (let us also remember, by the way, that FDI in retail was freely permitted till the mid 1990s and perhaps the first ?multi-brand? foreign investment in supermarket retailing was by a German retail group who partnered with Escorts Group and another in India to set up Nanz supermarkets) will lead to improvement in the price realisation for the farmers, create massive investment in the nearly non-existent farm-to-retail supply chains and control inflation do not really understand how the corporatised retail business ecosystem works, India?s challenges and limitations in setting up regional or national retail stores? front end, and the time and effort it takes to streamline various producer-consumer supply chains, those especially relating to perishable food products. There would be some benefit, for sure, from any investment in the modernisation of India?s archaic retail distribution ecosystem. But for it to make a nationwide impact, another 15-20 years would be needed. Let us, therefore, start by looking at the facts relating to retail consumption and retail business in India.

The most important fact, very surprisingly ignored by the supporters and opponents of modernised, corporatised retail, is that India?s consumption is growing very steadily, and will continue to grow for the next many decades. Even at a real GDP growth rate of 6% per year for the next 10 years (the government?s projections are closer to 8%), India would consume an additional $340 bn (in 2011 dollars) of retail merchandise. Medium and large retail (including corporatised) is barely $33 bn out of the current $470 bn, and may at best grow to about $150 bn by 2021, implying that traditional retailers (micro and small independent retailers and hawkers) will have an additional $223 bn or more of the market (in 2011 prices) to cater to. It is, therefore, no surprise that as per Technopak?s projections, the number of such traditional retailers will steadily increase in the next 10 years to 21m or more, with direct employment in traditional retail increasing from about 22.5 m in 2011 to about 31.5 m by 2021. No estimates have been made for 2031 but it is safe to believe that the number of independent outlets and direct employment therein will further increase very substantially?simply because Indian retail is not a ?zero-sum? game as long as the economy continues to grow steadily and with that, the growth in consumption remains robust.

The very fact that the size of the entire modern retail (including both domestic and foreign fully or partially owned) as a percentage of overall retail consumption in India is likely to remain below 20% by 2021, and the share of modern retail in overall food consumption even smaller at about 13.5%, implies that its impact (and especially that of modern retail controlled or influenced by FDI) is going to be so minimal that it is unlikely to transform the lives of hundreds of millions of Indian farmers, or significantly smoothen the convoluted and inefficient farm-to-consumer supply chains. Some (positive) impact may be seen across select perishables? categories but the farm sector taken in aggregate will not see a very major improvement.

There are other facts too, as per the accompanying table, which further illustrate the ground reality of India and its lack of similarity with any other large country anywhere else on this planet.

It is extremely important that all the participants in the debate relating to FDI in retail must acknowledge that the larger issue that the nation has to address is to come up with suitable reforms in the agriculture sector that can improve the lives of the farmer, undertake suitable reforms to smoothen the entire internal trade within India, improve rural and urban road connectivity to reduce the wastages in perishables because of bad logistics, and make suitable changes in the urban and suburban master planning to provide for adequate quantum of retail space for all categories of retailers including the hawkers, independents, corporate chains and even farmers? wet markets, which can bring the small farmers and producers in direct contact with the final consumers.

While all this is being done, let us welcome international capital and know-how from wherever it comes and whichever part of the retail trade ecosystem it comes in, simply because whatever India can attract even in the next 20 years will only reduce the financial and intellectual capital deficit India faces today in creating an efficient retail ecosystem that can benefit the producers and the consumers alike.

The author is chairman of Technopak Advisors Pvt Ltd

arvind.singhal@technopak.com

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First published on: 02-10-2012 at 02:10 IST
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