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Big Retail's Time Has Come in India
|by Sushma Ramachandran|
India's United Progressive Alliance (UPA) government seems determined to go ahead and gradually liberalise the retail sector despite continuing opposition from the Left parties.
The tortoise-like slowness with which the retail sector is being opened up is due to objections by the Communists, but the amazing fact is that there is some movement at all. This seems to be due to Prime Minister Manmohan Singh's conviction that bringing in the big retail chains will unleash a wave of employment in rural and urban areas. The fears of the Left, on the other hand, are that the entry of retail giants will mean job losses as small mom-and-pop retailers get pushed out of existence.
The fact is there is merit in both arguments. On the plus side, it is clear that agriculture is not providing enough jobs for the economy and there is an unprecedented wave of migration to urban areas. The entry of retail chains, which buy straight from the farmer, is bound to bring about greater purchasing power as the producer will get much better prices.
This has already been felt in parts of the country like Jharkhand where farmers have held demonstrations protesting the withdrawal of Reliance Retail by the state government. Similarly, this gives a bonanza to the consumer who gets food products sourced directly from the farmer without having to pay the middleman's commission. Clearly, a win-win situation for all.
But the Left has a point too. They are worried that the 15 million small retailers in the country may be forced out of existence. India has the largest retail economy in the world, according to a study by the CII (Confederation of Indian Industry) and A.T. Kearney. It pegs the size of the retail industry currently at about $270 billion with a growth rate of about six percent. Closure of the countless tiny retail outlets that dot the countryside can mean severe hardship for the families working in them.
At the same time, as the saying goes, no one can stop an idea whose time has come. And the time has certainly come for retail chains to enter this country. The process has been gradual, as mentioned earlier, but even so large retail has made a dramatic impact in the areas where it has been allowed to make an entry. The domestic retail chains of RPG and Reliance, among others, have lured consumers away virtually instantly from the traditional grocers. Small retailers in Uttar Pradesh, for instance, have made sufficiently noisy protests to ensure that Reliance Fresh had to close shop in the state.
In the long run, it is clear that the entry of large retail chains will benefit the agricultural sector, which is in dire need of resuscitation. They will also have a long-term effect on agricultural unemployment, which is the big worry for policymakers right now. Besides, Indian consumers are not likely to desert their neighbourhood grocers en masse immediately. Therefore the hue and cry over loss of jobs is somewhat premature. Domestic retail chains have already been allowed to set up business and it is now merely a matter of allowing bigger foreign players into the country.
Multinational giants like Walmart and Carrefour also have deep pockets and their huge investible funds are meant for sourcing products from rural areas, which in turn will provide more jobs.
The thinking in the commerce ministry right now seems to be that the existing policy of allowing only single brand retailing can be extended in a phased manner to multi-brand retailers. Single-brand retailing means that companies like Chanel or Sony can set up stores selling only their own brands. Even under this policy, foreign investors have to enter into joint ventures with Indian companies.
Multi-brand retailing means allowing companies like Walmart to sell a variety of brands under a single roof. The proposals now being considered envisage allowing multi-brand retailing initially in specific sectors such as apparel, footwear, stationery or electronics. The UPA government clearly expects this watered down proposal to reduce the expected criticism from the Left parties to these proposals.
Speaking to journalists at an event organised by a newspaper, Commerce Minister Kamal Nath defended the proposal on the grounds that it would not harm neighbourhood stores. He said about 70 percent of retailers in the unorganised sector lie outside the market economy and would not be concerned by allowing retail in electronics or apparel. Incidentally, as much as 96 percent of the Indian retail economy remains in the unorganised sector.
Strangely enough, the Communists are allergic to MNC retail chains but these operate unhindered in China. Walmart is the place to go in Chinese cities for cheap but good quality products. Of course, administration authorities in Shanghai frankly concede that they do not follow the communist ideology but instead follow what they describe as a "people's" ideology. Since Left party functionaries often go on educational trips to China, it is completely inexplicable why they are so opposed to foreign investment in India while accepting it as inevitable in that country.
In any case, it looks as if the UPA government wants some more employment-oriented economic reforms implemented before facing elections. If the running battles with the Left continue over the India-US nuclear deal and economic liberalisation issues, the government may have to leave prematurely despite all the assurances being given by their Left allies.
In such a scenario, it would be wise of Manmohan Singh to leave behind a legacy that includes modernisation of all segments of the economy and especially the till now neglected retail sector.
(Sushma Ramachandran is an economic and corporate analyst. She can be reached at firstname.lastname@example.org)
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