Thinking about Large Investment in Multi-brand Retail Trade in India by Dipankar Dasgupta SignUp
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Thinking about Large Investment
in Multi-brand Retail Trade in India
by Dipankar Dasgupta Bookmark and Share
 
It appears that a survey conducted by a reputed research institute has reported that a single Walmart store can substitute for more than a thousand average retail stores in India. On the face of it, the claim is deeply disturbing to say the least, both from the point of view of employment generation as well as that of business interest of small and medium retail business. However, the finding, assuming that it is error free, raises a question of analytical interest as well.
Will the emergence of a lone Walmart establishment wipe out a thousand or more small retail stores that already exist? Or, will it pose a threat for potential entry of small businessmen (including the associated workforce) into the retail sector? The direction of causality carries enormous significance. Destroying the means of livelihood of existing traders has grievous implications. Charting out a map for the future on the other hand is in the nature of a planning exercise. It is not entirely clear which of these two questions is being answered by the research work quoted above.
And it is not merely Walmart or other foreign retail chains that should be under the scanner in this connection. It has been several years now since India too came up with its indigenous variety of supermarket chains. It is puzzling, amongst other things, that the Indian stores are not being seriously attacked by the critics of FDI in retail trade.
For example, an obvious line of investigation should be directed towards finding out the extent to which small shop-owners have been displaced by large multi-brand Indian retailers. Perhaps serious research has been conducted in this connection as well, even though the lay public has normally not been treated to anything more than verbal rhetoric between opponents and supporters of big investment in retail trade. 
What, however, does casual observation suggest? The pavements of the city of Kolkata have been suffering from a hawker induced pedestrian jam syndrome for many years now. The hawkers’ stalls sell a wide variety of products, starting from fruits and vegetables, fast food, clothing, trinkets, stationery goods, books all the way upto sophisticated electronic equipment. If large scale retailers were to pose a threat to the hawkers, then some of the major street junctions of the city today would have turned pedestrians’ paradises compared to the hell that has prevailed for many years now. Quite clearly, this is yet to happen.
Indeed, if anything, one hears allegations that the hawkers’ temporary sheds have posed a threat to the conventional stationery shops located inside permanent structures. In fact, the more commonly heard story is that many a medium size shop owner uses hawkers’ stalls in the immediate vicinity of his store as extended showrooms for his products. If this observation is true, then the price wise competition brought forth by the hawkers has led to implicit collusion and therefore peaceful coexistence of the big and the small. Also, such arrangements quite clearly lead to what economists refer to as discriminating monopoly, with better off and possibly somewhat stuck up consumers paying a higher price for any given commodity inside the air-conditioned comfort of brand carrying shops and hawkers satisfying the needs of the economically humble majority. And, as economics textbooks teach us, monopolistic behavior, discriminating or otherwise, leads to unfair allocation of resources as well as welfare.
It was not, however, the hawkers vs. stationers that we started off with. We were actually concerned with the burning question of massive investments in retail trade and their possible impact on the small traders. In this connection, it is observable that the Indian variety of big investment in retail trade appears to be thriving. The convenience of shopping they offer is attracting many consumers. This is all too evident from the queues that form at the payment counters. Often customers have to wait at least half an hour to clear their bills before exiting the premises.

We have already noted the existence of two classes of consumers in our hawker vs. non-hawker medium size stores story.
The multi-brand retail establishments probably attract both types of consumers, those who wish to enjoy the price advantage as well as those with an eye towards ambience. The price advantage is evidently available in the multi-brand retail stores, partly because larger capital has a large buyers’ advantage in the wholesale markets as well as at prime producing locations. Some believe that their presence poses a barrier for the extortionist practices middlemen engage in, though this hypothesis calls for serious field investigation. Quite apart from price competition, the multi-brand retail stores can be relied on for product quality. Packaging practices, quantities, weights and other features bearing a sealed guarantee as well as the availability of diversity makes shopping a simpler as well as happier experience, though the happiness of the experience attracts frowns from the “opposition” camp.
There is a cultural barrier it would seem in approaching the issue from the point of view of consumer satisfaction. A consumer’s interest it appears should be  the least important amongst the concerns of policy makers, even as we express jubilation over the fact that for the first time in history, consumer expenditure in rural areas of India has exceeded that of urban areas. Urban consumers, it would seem, are to be treated with suspicion and rural consumers eulogized. One is not quite sure why this should be the case, but a probable reason lies in the perception that rural areas are poverty ridden while urban dwellers are exploiters. This may well be the case, but the latest figures reveal that the latter, even as they are reveling in the luxury of shopping malls, have actually consumed less than the exploited masses.
Going back to the causality question raised at the very beginning, it should be evident that the shopping plazas have not quite usurped the existing small or medium traders, at least not visually so. From the logical point of view as well, how many shopping plazas, one ought to ask, would be required to completely satisfy the demands of a 120 crore large population? The arguments presented so far suggest that large scale retail trade, however large it may be, cannot possibly weed out the small traders, simply because there are too many consumers to cater to. Will the arrival of FDI in multi-brand retail trade make a major difference to the argument? As far as small traders are concerned, it is not so obvious how Walmart and others will make an important difference to the number of small traders who are already in business. However, they might pose competition for the Indian large traders. What is more likely to emerge is competition between big capitalists, unless the large Indian retail marts invest more and adopt modern technologies. Whether they intend to do so is unclear, especially in the context of the infrastructure debate.
It is widely believed that FDI in retail trade will benefit farmers through the creation of large scale cold storage. There will be less wastage of produce as a result and farmers will not be forced to sell their products at throwaway prices to unscrupulous intermediaries. Whether this will actually happen is a matter of conjecture, especially since Indian investment in multi-brand retail trade is still to initiate investment in supply chain infrastructure.
What seems certain, however, is that multi-brand retail trade will probably survive, in the presence or absence of foreigners. In the process, new employment will be generated for normally unemployable young people with high school education at best and they will pose little threat to the large numbers already employed in the existing small retail stores.
If this argument is not fallacious, the answer to the causality question is reasonably obvious. Large investment in retail trade will improve rather than worsen the employment scenario in India.  
  
5-Sep-2012
More by :  Dipankar Dasgupta
 
Views: 1263
Article Comment @pranay
This article was more about big capital in multi-brand trade than about fdi.
Our existing Indian multi-brand retailers are dumping
a lot of foreign goods too. So, they should be destroying
small traders too. I don't think we should even talk
about Walmart. If multi-brand retail is bad then we should
first get rid of Specers, Big Bazars etc. Thanks for reacting.
This is a controversial subject.
dipankardasgupta
09/14/2012
Article Comment the above survey just pointed out the co exsistence of a hawker and a small retailer i just want to pont out here that the raw material purchased by them is domestic,whereas incase of wal-mart they can dump the goods from china or anywhere else, so small retailers n wal-mart r not in a level playing field.i is a threat for small traders thats what i feel.
pranay
09/14/2012
Article Comment Dear Kumud babu,
You have raised a very important question. Corruption needs to be addressed and one must find economic soloutions. Prof. Kaushik Basu of Cornell University wrote a paper along these lines during his tenure as Chief Economic Advisor to the Govt. of India. He will soon be joining the World Bank as Chief Economist. Lots of young people are working on Kaushik's fiscal proposals to cure corruption and we may soon hear a good deal on the issue.
dipankardasgupta
09/07/2012
Article Comment Dear Mr. Mallick,
You probably have a point. The thrust of my article though was not so much on Walmart as on large investment in retail. A good deal of that has come from Indians in India. No one seems to speak about the impact of these establishments on small traders. I merely wanted to point out that Walmart will be fighting the large retailers in India, which is capitalist competition. The small will not be affected by this. I have no idea how large retailers, foreigners or Indians, can leave thousands homeless. The fact that many cities in US don't have Walmart only goes to prove that Walmart will survive only in a few cities in India. Most of the country will rely on small traders. More importantly, I think Indian large retail should be encouraged to grow more than foreign retailers.
dipankardasgupta
09/07/2012
Article Comment Dear Dipankar, Economic analysis of issues like these clears many common misconceptions. For example, we have morally become very indignant about corruption but I am yet to see someone analyzing its economic causes and suggesting fiscal policies and measures to stop them. Will you please do that, Dipankar?
TagoreBlog
09/06/2012
Article Comment India is a soft meat for foreigners. With the tacit help of Indian politicians they can invade the country, loot everything and leave thousands homeless, poor and lead to live without any purpose. Even in USA, many cities do not Walmat to come up, for it will impact the locals adversely.
The survey you are talking of perhaps is built in mere guess work. FDI in retail is a myth, it is perhaps the black money of Indians staced in foreign banks that will be pumped in as white money.
Walmat and Ikea etc are likely to act as fire to poor Indians as cotton.
Kumarendra Mallick
09/06/2012
Article Comment Dear Kumud Babu,

Thank you for reading this piece. It was somewhat quickly written, partly because I am somewhat preoccupied with a few other things. Let's hope that I can catch up with my hobbies soon.

Dipankar
Dipankar Dasgupta
09/06/2012
Article Comment A highly topical issue discussed here perhaps for the first time. In this essay it has been viewed primarily from an economic angle. It will answer some frequently asked questions to our benefit. And for that we must thank you dear Dipankar.
TagoreBlog
09/06/2012
 
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