Originally Published 2014-04-14 06:22:16 Published on Apr 14, 2014
It makes more sense to enable domestic multi-brand retailers to become strong and see how they develop the village infrastructure and supply chains. It would be risky to usher in oligopolistic global retailers without any strings attached and allowing them to take a big slice of India's huge retail market.
Multi-brand retail: Risky to usher in oligopolistic global retailers
"Amidst all the confusion about the exact focus and message of the belated BJP manifesto, the one item that stands out is about saying no to foreign investment in multi-brand retail. This embodies a big reversal of policies of the UPA, which had relented due to pressure from various multi-brand retailers like Walmart and Tesco. In recent months the hardline approach to multi brand retail was modified and various concessions were doled out to big global retailers. The UPA government relaxed some of the policy conditions regarding the 30 per cent mandatory sourcing (from India) clause, and investment in back-end infrastructure. It also permitted entry into any state in the country irrespective of the size of the population, subject to the condition that the particular state allows it. For those retailers who got permission to open shops in certain states, there would now be problems if under a new government at the Centre, those states do not allow multi-brand retail entry.

Even though Walmart and Tesco are planning to open their branches in India, the BJP manifesto declaration might create a stir among other foreign investors, in case it comes to power. Walmart has remained unfazed and has announced that it would go ahead and open 50 new branches in India which would be in the form of wholesale outlets that would start online operations to sell to small shopkeepers over the next four to five years. It already has 20 wholesale outlets in India which sell to the nation's small shopkeepers. Full foreign ownership in wholesale trade has been allowed. It is only in multi-brand retail trade that foreign ownership is restricted to 51 per cent. Retail trade is big business in India worth $500 billion.

There is, however, no retail Walmart store in India. China has a huge Walmart store on the outskirts of Beijing. It has little to fear because most goods are sourced from China. In India the fear is that these retail giants would stock attractive imported goods which would offer tough competition to domestic manufacturers and retailers. Particularly hit would be small retailers who work in neighbourhood (mom and pop) shops and work on small margins. The big retailers with their deep pockets offer goods which are cheaper and better in quality in order to capture a sizeable share of the middle class market. They can wait for profits to come in later. Their entire strategy is based on increasing volume, size and scale. Once they capture a good market share, they dominate and mark up prices.

A lot has been written on how global retailers would cut out middlemen in India and pay directly to farmers, and how food inflation, largely attributed to the increasing margins of middlemen, would come down. But let us not forget that Walmart is also a middleman!

An efficient supply chain is important for the country, no doubt, but we can have it through domestic multi-brand retailers also where they would go for contract farming with farmers and various products would come straight from the farm to fork. The eliminated middlemen would have to find jobs and would join the ranks of the unemployed.

But only big farmers would be involved in the supply chains for big retailers and 80 million or so small farmers would be left out of the loop. Even so it has been argued that the urban consumers' satisfaction is important in today's world and the average housewife welcomes the idea of washed and often chopped vegetables available in supermarkets. The attraction of Walmart is great, especially because of the Indians who have visited these stores abroad and found that they are convenient for all shopping needs. A lot of plastic, Styrofoam packaging and water are used by global retailers plus they need huge air-conditioned spaces. They also will employ educated workers and IT staff.

Hence the pros and cons are equally weighty except that millions of small retailers would be out of business when big global retailers establish their outlets in India. It is their votes that are important for any party aspiring to come to power. True, in a country with around 300 million poor, the government should be wary of adding to the numbers of unemployed. Because of 90 per cent of the workforce employed in the unorganised sector, a majority are in retail trade. They source their products from small and micro enterprises which are an important segment of the manufacturing industry. If there are strict regulations that make it mandatory for multi-brand foreign retailers to source their products from SMEs, it would be helpful for the small-scale sector.

Besides, small farmers are also important and their needs are colossal. They need an improvement in infrastructure and inputs. We cannot just have contract farming for big farmers and even their livelihood is not secure because if anything goes wrong, whole consignments could get rejected. Where will the farmer find an outlet for his produce in such a case? The government, on the other hand, may abdicate its responsibility for agricultural development once these big retailers take part in agri-business and attempt at improving farming techniques, storage and transportation to suit their needs.

Many argue that big retailers would build air-conditioned storage spaces and have cold supply chains and thereby reduce the enormous amount of fruits and vegetables that go waste; there is also the possibility of increasing exports. But whether such backward linkages through huge investments in infrastructure would be in place is yet to be seen.

In all, it makes more sense to enable domestic multi-brand retailers to become strong and see how they develop the village infrastructure and supply chains. It would be risky to usher in oligopolistic global retailers without any strings attached and allowing them to take a big slice of India's huge retail market and enfeeble our own indigenous forms of trading and manufacturing that include linkages with handicrafts and handloom sectors.

(The writer is a Senior Fellow at Observer Research Foundation, Delhi)

Courtesy : The Tribune, April 14, 2014

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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