Open Forum

New Delhi, 22 December 2011

Retail Saga

WHO BENEFITS TODAY?

By Dharmendra Nath

Widespread misery of potato farmers across the country from Haryana to Gujarat again draws our attention to grievous shortcomings of our current retail trade. Good economic management means good management of production, distribution and prices. Availability and prices are not a matter of production alone for what is produced can easily go waste or can be cornered and kept away from the reach of the market. Distribution is a key factor which affects both production and prices. Faulty distribution can affect production adversely by withholding market signals from the producer and prices by creating artificial scarcities.

Hence the pressing need for an economic policy to concentrate on distribution. Proper distribution not only ensures availability, but more importantly, it conveys appropriate market signals to the producer so that he can plan his production accordingly. Should he produce more or less? Should he produce some thing different? These are questions best answered by signals thrown up by the market.

Only a few steps from distribution is the more sophisticated territory of sales and marketing. In sales the products are just stored and sold to whoever wishes to buy them at that price. There is no effort at market widening or deepening. For that one has to make an extra effort of venturing into the territory of marketing. Product, price, placement and promotion all have a role to play. Each is to be paid attention and the result can be a dynamic and massive change in market size and shape. These then cease to be static concepts.

If that is the context, should we be thinking of plain vanilla distribution or at best sales only and ignore altogether marketing and the advantages it can bring to the economy? A look at our traditional retail trade would show that it has mainly been distributing and selling through the ages. Post independence we introduced mandi (market-yard) auctions to secure competitive prices for what could reach the mandis. But we continued with essentially the same old multi-layered mechanism comprising wholesalers, semi wholesalers, stockists and retailers which rule the roost today.

Every item travels through that funnel. It is a boa constrictor grip and every layer of trade adds its margin to the product cost and sells it for that much more. There is very little choice for the producer or the consumer.

And the margins added are not small. There was a time when our Essential Commodities Act talked of 2 per cent whole sale and 4 per cent retail margin. Nobody is satisfied with that. Today’s margins are in double digit percentage. There is hardly any self-restraint. Quite the opposite, the clear message is to charge as much as the market can bear, with the result that any wage increases in the economy are quickly lapped up by trade.

Also there is hardly any effort at market widening, cutting cost or economizing. Those management tools are just not used. The opportunity is simply lost. What could have been a challenging and nation-building task is reduced to the level of idle livelihoods. It is for us to see if we are satisfied with this kind of passive performance.

If the feudal land order which served us for so long went out because it was slow, passive and outdated, why should we be persisting with an equally dull feudal commercial order? Is it not equally outdated, passive and slow?

Let us now see how the operation of the present order affects us all in the larger society, the producers, the consumers, the employees and the Government. We keep hearing and reading documented stories of how producers get only a small fraction of the price consumers finally pay for a product. The story repeats itself in every glut season and we just ignore it. Call it the onion story or the potato/tomato story. It recurs with seasonal regularity. Currently our fields and streets in several States are littered with unwanted potatoes which cannot even bear the cost of transportation and digging them out whereas our consumers are agonizing over their high prices.

The society largely ignores the misery of the producer because it is the misery of a less vocal and widely scattered section. Consumers of course pay many times over the price paid to the producer. They are appeased through token fair price shops while the longer term strategy always is to wait for the storm to blow over after windfall gains have been made.

As for employment with the retail sector, less said the better. Being a part of the unorganized sector it employs people at very unfair terms with very little job security. A mere look at the salesmen of the organized sector and at their counterparts in the unorganized sector makes the difference clear. More than that unorganized retail is the principal employer of unauthorized child labour. We totally ignore the plight of the boy who fetches and carries at the retail shop and satisfy our conscience with a small tip to him. What about his lost childhood, his right to education?

How about the Government and its tax collection? There is no proper billing in the retail trade. Hardly any one gives a bill or a receipt. How does the Government watch over proper tax collection in this situation is an unresolved mystery.

Now look at organized retail. There is a vast difference. Prices paid to the producer and charged from the consumer are recorded. Government taxes are calculated on the bill and clearly shown. Employees are neatly turned out. There is a marketing effort which can enlarge the market for many of the products handled. What else do we want?

So, why shouldn’t organized retail backed by the best technologies in the field of procurement, storage, supply chain management and cash circulation be given a fair chance? If there is foreign investment in other key areas, why not in this one too? Or do we think that we have nothing to learn from others?

An important question relates to the tremendous clout of the present day retailer in our social set up. The answer is not far. A portion of what the producer, consumer, employee and Government are deprived of is paid to political parties who lap it up to run our democracy. Outside of scams, the retailer is the steadiest source of political funding. That is the nexus looking for specious arguments to satisfy our conscience. Can we ever rise above this hullabaloo and get done with it?  ---INFA 

(Copyright, India News and Feature Alliance)