After having successfully deflected the opposition’s gunfire from corruption & inflation to FDI retail, the Manmohan Singh led Central Govt has backtracked and the decision to open multi brand retail to FDI seems to have been put in cold storage for now.
While the entire saga of events did highlight the fissures within the UPA on key decision making processes, the fiasco may have resulted in retail now being anointed as one of India’s very many holy cows and may thus not be subjected to critical reforms anytime soon. However sad or welcome the rollback decision might have been, one is certainly stuck by the contrast between Government and opposition claims on what FDI in retail would do.
At one end, the Government spin masters claimed that FDI in retail would do what Governments in the last 70 years could not, i.e., make farmers rich, make consumers benefit, generate employment, create infrastructure and what not, the opposition and the varied opinion makers in the opposite camps were equally vehement in their claims that FDI in this sector would bring India precipitously close to where it was the early 18th century. If only, if only, either of these claims were even partially true.
It will not be unjust to disdainfully dismiss the Congress’s fanciful claims. Even if we were to discount the oft repeated opposition claim of Walmart’s 2.1 million employment vs India’s 40 million employment for the same turnover, it is clear from an observation of current Indian supermarket chains that a consolidated store shall be more efficient and employ lesser number of people. Even otherwise, the chaotic and disorganized Indian Retail sector is virtually like a cottage Industry and anyone with even a little knowledge of economics would know that efficient processes eliminate manpower requirements, not enhance them. So, it is likely that only a fraction of people who are engaged as employees in retail stores now will end up as employees of the MNCs. And if we eliminate the presence of the so called middlemen from the value chain, that would mean that even these people will be without vocations / jobs and only add to the number of unemployed. Where does the additional employment get generated then?
A counter argument could be the need for employment in back end operations. If that be, it would only be a partial filling of open jobs and will to some extent, defeat one of the motivators for reforms, i.e., control of overheads / middlemen commission.
Even otherwise, whatever we see now does not support the contention of Retail chains being more beneficial for customers. Let me take the example of the Retail chain where I’ve doing the bulk of my grocery shopping for the last 4 years. This chain offers vegetables, fruits and grains, at similar or higher prices compared to your regular mom and pop store. Interestingly, many a times I’ve noticed that the fruits sold by the chain are not so fresh and more expensive than those being sold by the hawker, the last – last link in the very inefficient supply chain these retailers want to replace. Only a couple of years back, when retail onion / potato prices were going through the roof (even as wholesale prices remained in control), this chain, with all its efficient supply chain was selling at almost the same price as was being sold by other local retailers. The moot question as to why I continue to shop with them – the convenience, if you have to shop in bulk and the service.
Many a times, it is quoted that barely 40% of Indian produce is stored. So? What does it mean or should it necessarily mean something? A large bulk of our produce is through small farmers (self sustenance) and consumed in a hinterland of a 100 mile radius. Is it really a wonder that we don’t have that much of surplus which is to be stored. Of course, we have years when a potatoes/ tomatoes get produced much more than what they can be stored. But how is this occasional problem served by entry of large foreign retail chains?
At the same time, it is a fallacy to expect that foreign retail chains will kill the domestic retail industry. For one, the sheer spread of India and the local economics won’t allow percolation of such retail chains in all urban agglomerations, leave aside the small towns which dot India. Further, even in cities, a Wal Mart will certainly cause many to down shutters but still allow many to sustain business. With the type of demographics which comprise a large majority of our cities, it is difficult to see Walmarts / Tescos completely replacing your neighborhood stores which offer you products on credit and in very small quantities, at anytime of the day.
More critically, it is not foreign businesses which kill retail businesses alone. Larger retail chains have impacted independent stores where they have come up. If we don’t have an issue with internal competition, then what is so bad about external competition? Even here, before I’m accused of being an agent of the East India Company, let me clarify that India has had MNCs dominating in the most basic of spaces for decades now, without it being any poorer. Very basically, compared to the colonial days, where wealth was simply transferred overseas, in today’s MNC model, the assets and even profit ploughback mostly remains in the land of operations. One can legitimately ask if the profits ‘ploughed-back’ by Unilever to its HO are material enough for us to visualize a scenario of drain of wealth?
Like any other facet of the economy, FDI in retail has its own pros and cons and need to be judged simply on that. Let us please be spared the sight and sound of both Government hyperventilating on how it will ‘move farmers out of poverty’ (sic) and quoting some fantastically fantastic figures and the opposition beating its breast on sellout of India, once again!
