There are "Stores" and then Stores
September 11, 2007
The main objection to the entry of FDI in Retail, by those of us who were the first to oppose it, was based on two premises. One was that it was entry by large format retail outlets like those of Wal-Mart where a small "store" is over one lakh square feet large, and considering that the average Indian retail outlet is only a hundred square feet small, was that a single Wal-Mart type outlet was actually a replacement for an entire Indian bazaar. In other words, a Wal-Mart kind of "store" would be a replacement for an INA market in New Delhi or a Crawford market in Mumbai. Thus there are "stores" and then stores. We must differentiate.
The second premise was that, because of their scale of procurement in China (Wal-Mart's China imports are now almost USD30 billion), retail players like Wal-Mart or Carrefour would be able to establish a pipeline for cheap Chinese imports wrecking havoc on the small Indian producer trapped in a low productivity regime and cocooned in a multiple layered import system. While the first ensured high production costs, the second largely neutralized it by pushing up the cost of imports. We warned against the power of a monopsony. Evidence abounds on how the big buyer be it a Wal-Mart or a Nestle has beaten down producer prices to the bare bone, putting many a small country deeper into poverty. Low Chinese producer costs are now made possible with excruciatingly low wages, long working hours and no rights such as collective bargaining which we in India take as inherent.
A typical Wal-Mart "store" would displace several thousands employed in the small neighborhood stores selling not only farm produce and everyday items like soaps and toothpastes, but also small services like turning of keys and fixing of tyres. India has over 55 million persons employed in small retail and much of this owes to the fact that the State has not created enough jobs in Industry to gainfully absorb young people entering the work force. In the absence of jobs retail became the safety net. The reader must wonder about the millions of small homes on the main streets of thousands of towns and villages which have metamorphosized into small retail outlets?
The hucksters for FDI in Retail in the PMO, Planning Commission, Commerce and Finance Ministries, Chambers of Commerce and think tanks like ICRIER, on the other hand argued that consumers have the right to low prices and that the big stores will establish modern and efficient supply chains. These fellows either don't know about how efficiently bananas move from a place like Hoshangabad or Cauliflower from Betul or Onions from Nasik to the urban and even rural markets or just care more for Wal-mart? They talked about wastages and produce rotting in the fields without much anecdotal evidence and with little or no empirical evidence.
India has one of the most efficient supply chains for dairy products and we can do just as well for other foods without the Wal-Mart's of the world. Then we were told that this was the wave of the future. That might be so. We argued that it can be allowed in gradually with the least disruption. Hence, people like me, suggested a phased entry using the experience of other countries. In Thailand the Wal-marts are required to locate about 20 kms from a city centre. In China it took them two decades to open up on the scale they have reached now. We also suggested that these monopsonies be made foreign exchange neutral, i.e., they procured for export locally as much as they imported. Instead of responding to these intelligently the high authorities in government and this includes the PM, responded with the usual name calling that passes off as debate these days.
Now that brings us to the issue on hand. What does one do with the Uma Bharati's and VS Achutanandan's, and the several groups and associations opposed to corporate retail as a whole? I think it is rather late to din any intelligence into the closed minds of the old Stalinists or the inflamed minds of the neo Hindutva crowd. They are opposed to all change. The trader associations are driven by exaggerated fears of organized retail entering their unorganized domains characterized by freely floating and inflated prices. I don't see why anyone has to go out on a limb to secure the high incomes of the big traders and retailers?
Those opposed to the Reliance's, Subhikhsha's, and Spencer's entering the produce and grocery retail business are only frightened about the market discipline that a professionally managed small retailer, even if it is a part of a large corporation or a chain, would impart to the business as a whole. These are not gargantuan Wal-mart type outlets but really small stores entering an unregulated space without first destroying it. Corporate retail stores are just stores that will do the marketplace a lot of good by bringing in price and procurement discipline by ensuring sub-standard goods are not passed off to the consumer at high prices. In towns like Hyderabad there is evidence now that handcart and head load retailers are now bulk procuring fruits and vegetables from the corporate retailer and selling them more profitably than before.