Thursday, December 8, 2011


FDI in retail is not such a threat as it is perceived to be

It was kind of nice to see that how our political class (the opposition and a few allies of the ruling UPA) is getting concerned over the interest of our farmers, small traders and the SMEs from the perceived threat from the giant retailers, who in all probability would soon get a go ahead from the government to set up their outlets all across the nation. What I have not understood yet is that how will the FDI investment in retail sector worse-off our farmers, small traders and SMEs when they are already in a disastrous condition? And if they aren’t any better-off then why was our political leadership waiting all this while?

Well if we talk about Indian farmers, there lies an inherent dichotomy. Either they are very rich on account of faulty subsidy targeting of free power, free water, and no income tax or they are merely surviving on account of the very same reason. For those who are rich, it does not matter, but for the ones who are poor it definitely does, as their deprived state is more on account of marginal holdings, lower output and perpetual blackmailing from the middlemen. So once the large retailers come in, nothing changes — neither their land holdings become smaller, nor their output dip any further. But what these giant retailers can do is probably clear the layers of middlemen involved in the procurement and distribution process and bring about some respite both to consumers and farmers. And this in itself would humanise the entire trade as stability in procurement and selling price would bring some life in the lives of farmers who are right now on the brink of self destruction. So, if not better-off, at least farmers would not be worse-off.

Just like the marginal farmers, the same holds true for the small retailers. In fact organised retail is not new to India. This sector has been in existence since past few years. And in these few years I do know of a few large retail chains who have closed shops already and probably a couple of them who have somehow managed to breakeven at last. But in these few years I didn't come across a single small shopkeeper who had to close their shops on account of loss in business, particularly because of the presence of large retailers in the vicinity. On the contrary, if the market has grown, it has grown proportionately for them as well. In fact just like the Indian organized retail has failed in terms of creating any dent to the small retailers, the international giants would also fail. The reason is the small neighbourhood retailers thrive on relationships. On top of it, we all know that the neighbourhood retailer does not mind for a monthly credit cycle and also at the same time can sell commodities at any denomination. I have personally seen retailers in my neighbourhood, selling commodities in denomination of 100 gms – more so because there exists a large market for these denominations and is something which the large organized retail cannot even think of. Finally, with the advent of these giant retailers the SMEs would tend to become more organized, as they would get a level playing field to compete. Right quality, right price and adequate demand would find the shelf space — thus making the SMEs more efficient and effective at all levels.

Where is the problem? Why is it that our political class crying foul? Is it on account of some serious reasons, or is it that in absence of any credible issues, they feel that the FDI in retail is a foregone opportunity for them!


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