Open Forum

New Delhi, 10 July 2009

Ban On ‘Big’ Retail Trade

GOVT MUST HONOUR REPORT

By Dhurjati Mukherjee

The strongly-worded parliamentary standing committee report on retail recommending “a blanket ban on domestic corporate heavyweights and foreign retailers (to prevent them) from entering into retail trade in grocery, fruits and vegetables”, is very welcome. Equally important is its recommendation that restrictions be put on them for opening large malls for selling other consumer products. In addition, the Government must pay heed to the committee’s suggestion of setting up a regulator and bringing an Act to reserve some areas for small and medium players.

As of now, our laws permit 51 per cent foreign equity in single brand retail. Multinationals are not allowed in multi-brand retail though they can set up cash-and-carry establishments having 100 per cent ownership. This has not only come in for severe criticism but there have been widespread protests in the country because of the impact on the unorganized retail, which incidentally happens to employ a whopping 40 million people or roughly eight per cent of the total employment generated.

The country’s retail market is estimated at over $350 billion with organized retail accounting for just 4-5 per cent of it. The remaining is accounted by the unorganized retail sector. Early last year, an Indian economic think-tank optimistically estimated that the market size of organized retail could grow to $590 billion by 2012, which would mean 16 per cent of the total trade. This would obviously mean that unorganized retail would come down, thereby affecting the prospects of small and medium traders.

Of the total growth of organized retail, 60-61 per cent of all investments are expected to go towards food and grocery, which means direct corporate investment in agriculture. Most analysts have been of the firm view that India is attempting to do in 10 years what took other global major markets 25-30 years.

Unfortunately, there has been little understanding of the impact corporate retail would have on the existing retail and agricultural sectors – the country’s two largest sources of employment. India has the highest shop density in the world with 11 outlets per 1,000 people. It is the high level of decentralization in the market that keeps all these businesses running and providing high employment levels.

Clearly, the entry of the giant corporate retail in the country’s food market would have a direct impact on the 650 million farmers and 40 million people employed in retail. It has been found that nowhere have these corporations given a thought to the welfare of the people, society and ecology. Therefore, restrictions have been imposed on MNCs in many countries of Asia, which include Chine, Malaysia, Indonesia, Thailand and Japan.

Notwithstanding that cities and smaller towns may look beautiful with shopping malls, the fact is that entry of giants would have a cascading effect on the small retailers, most of them uneducated, who would be out of employment, thereby endangering the livelihood security of their families along with their own.

Related studies conducted in both Delhi and Mumbai by Navdanya Research Foundation and Prof. Anuradha Kalhan of Jai Hind College respectively on small retailers have come out with some revelations: there has been a drop in sales and drastic decline in profits since the malls have come up; highest concentration in decline sales by business-type experienced in grocery stores and that majority of the hawkers felt threatened and were contemplating leaving their age-old business.

Besides, big business houses would be sourcing cheap goods from China, Thailand, ASEAN countries, which could lead to unfair competition and livelihood losses in the foreseeable future. It is pertinent to mention that Walmart is China’s 6^th largest trading partner and with their entry into India, it is quite obvious that foreign goods would be sold on a largescale. These large corporations would be at a distinct advantage as they would able to buy in bulk quantities, specially branded products and thus ensure economies of scale.

In India, it is well-known that fresh fruits and vegetables suffer damage and deterioration of around 40 per cent as these are transported from distant rural areas. The farmers receives a fraction of the retail price while the middlemen, who collect the produce from them make a lot more. Absence of cold storage facilities for preservation and of refrigerated transportation normally causes huge losses.

In the above scenario, the Reliance Fresh model is being argued as the best alternative. Here the role of the middlemen is curtailed, the food losses are minimized and standard products reach the consumer. It is also being said that the company would give scientific agricultural advice and support to the farmers to improve productivity, quality and uniformity in size and taste.

However, a number of questions are worth putting across to those who feel that such a model would benefit the country. The first is obviously the employment aspect and the drop in sales of small retailers which is the main objection. The second is that of middlemen – instead of individuals the company would take over that role. In this case, there is no data to show that the company would pay more to the farmers, when in the city malls they are exploiting the workforce with 10-11 hours duty with no extra pay.

The third aspect relates to the setting up of cold chains in towns and villages, which of course, is a social responsibility of the Government and which the food processing ministry has agreed to set up to minimize the losses. The last aspect is of providing scientific guidance, which rests entirely with the Government. It has the Indian Council of Agricultural Research (ICAR) specifically for this purpose with huge financial outlay. Which private company, either Indian or foreign, has such accounts for agricultural research? However, the only problem is how much the ICAR has succeeded in translating the benefits to the field or to the small farmers in particular.

Keeping in view the above facts, it may easily be concluded that allowing corporate houses, whether Indian or foreign, to set up malls is in no way justified. The Government should be proactive and draw up a plan of action to help the farming community by setting up cold chains and other necessary infrastructure so that they could get the maximum returns for their produce. Moreover, the ICAR too has to take a major step forward, specially in Eastern and North Eastern States, to help increase the productivity and quality of crops.  

Clearly, there is no need for allowing the corporates entry into the retail trade of agricultural produce. More importantly, not at this juncture when employment generation is a big problem and the livelihood and security of farmers and small retailers need to be protected at all cost. The parliamentary standing committee, headed by BJP’s Murli Manohar Joshi, must guard ensure compliance of its report. --INFA

 (Copyright, India News and Feature Alliance)