FDI in Retail: Wholesale victory

Dec 05 2012, 19:48 IST
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Sunil Jain Sunil Jain
SummaryThe vote in Parliament shows India’s open to business, as is the political class.

scope for kiranas to grow. With India’s retail opportunity all set to grow from $490 billion this year to $810 billion by 2021, even assuming organised retail’s share trebles to a really ambitious 20% by then, this still allows kiranas to increase sales by as much as 40% in real terms during this period—that’s not small change by any means, and certainly not indicative of a sector under stress. And why should it be, given that, the way inner-city retail space is so limited, rentals can eat up as much as 30% of turnover, making it unviable for organised retail to be in city centres. Oh yes, given that just 22 cities are open to retail FDI, the at-risk market is just about $40 billion out of the total $490 billion retail market—so in the extremely unlikely event of all kiranas being driven out of business, we’re still not talking of catastrophe. After all, for the kiranas to be driven out of business, this means Walmart will have to be offering 25-30% discounts over the kirana—surely the substantial consumer savings, and the dramatic fall in interest rates as a result, have to count for something?

But what about employment, the anti-retail-FDI brigade will ask? Apart from the fact that organised retail seems to be hiring more people per square foot, and at much higher salaries, than kiranas (Bharti’s Easyday hires 19 persons for each 2,600 square foot store as compared to 2-3 for a 500 square foot kirana)—this is, it is true, not the same as employment per rupee of sales—the fact is that employment changes all the time in dynamic economies. Between 1993 and 2004, for instance, the number of supervisory staff fell from 2.4 million to 1.5 million and clerical workers from 8.5 million to 5.3 million while construction workers rose from 5.4 to 13.1 million, hotel/dhaba workers from 1 to 1.5 million, maids and domestic help from 2.2 to 2.9 million and hairdressers from 1.3 to 1.8 million…

If it wasn’t about kiranas, farmers or employment, what was the debate about? It was always about political posturing and dealmaking, so the person with more strings to pull, more favours to dish out, won the day. That’s an important lesson for the UPA as it goes about rebuilding the credibility it spent the last 8 years destroying.


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