Opening multi-brand retailing for foreign direct investment has brought in wholesale criticism from several quarters. But the discussions on the subject have generated more heat than light and objections are more in terms of generalities than specifics. From what one has been able to see in the media, two major concerns seem to be worrying the critics: the plight of the kirana stores and possible exploitation of farmers. Organised retailing, including multi-brand retailing, is now present and is becoming more and more popular in all our metros. The trend is also catching up in tier 2 and tier 3 cities. Malls are becoming not only shopping centres but also the venues for entertainment, food and generally lazing around. No FDI was necessary for this to happen and this trend is bound to catch speed in the coming years, with or without FDI.
All the objections raised against FDI in retail are applicable to all organised retailing, except the one that Walmart and its peers may turn out to be the East India Company of the 21st century and subjugate the Indian State. It takes a lot of naivety to assume that any foreign company, or country for that matter, can take over the economy or political administration of India in the current century. Therefore the issues to be seriously dealt with are the plight of the small retailers and farmers. The operation of so many malls in all our metros for years now has had no tangible impact on the small retailers. And whether the malls are operated with Indian funds or foreign funds can obviously not make any difference to the situation. As of now, government has allowed investments up to 51 percent by foreign companies. But entry of fully owned foreign companies in our retail sector is also not likely to make any substantial impact on our small retailers simply because the products, price levels and clientele that the kirana stores cater to and the organised retailers attract are substantially different from each other. A house wife looking for a loaf of bread or some spices is very unlikely to postpone the purchase to her next visit to a mall which happens only when she has time to spare and major purchases to make.
Of course, some shift of business out of small stores is bound to happen. But assuming that a large number of small stores actually get wiped off by organised retailers, how much of a tragedy will that be? Since the organised retailers cannot force themselves on the consumers, they can wean away the clientele of the small stores only by offering lower prices or better services. And if some stores providing poorer services or charging higher prices are replaced by an organized retailer, the loss of such stores would obviously be the gain of their clientele. Add to this the fact that the quality and quantity of employment in our small stores are nowhere near what organized retailers can offer. So, even if the unlikely collapse of some small stores actually happens, should it be a matter to lament or to celebrate?
As for farmers, it has already been proved by experience that the middlemen operating in procurement and distribution of agricultural products can be reduced and producers can get better prices from the centralized procurement systems operated by organized retailers. It is obvious that the society should be concerned more about the welfare of the farmers than the middlemen. In the present distribution system, middlemen make much more money than the farmers. Moreover, estimates show that nearly 40 percent of food products of the country is lost at present because of inefficient procurement, storage and transportation. Efficient supply chain management by organized retailers can convert most of such losses into earnings for farmers.
Some dogma driven groups had very vocal objections to computerisation during the 1980s and had paralysed the working in several sectors in the country in order to draw attention to the huge loss of employment that computerisation was supposed to cause. Eventually, computerisation helped to scale up operations and increase employment in banking and several other sectors and the major leaders of the anti-computer movement now have their own web sites as well as profiles in the social networks. This history will repeat in the case of retailing. Those opposing FDI in retail at present are bound to encourage it later.
They are bound to see the economic cost of their current populist approach and also notice that the sections of society that would benefit from organised retailing substantially outnumber the unorganised retailers and middlemen that they are now seeking to protect.
The author is secretary general, CII. Views expressed are personal
