Economic Highlights

New Delhi, 8 November 2013

Retail Chains Explode….

LEADS TO RISING PRICES

By Shivaji Sarkar

It is the worst of times for the Indian economy with rising prices hitting it hard. Now there are indications that prices of onions and other vegetables are increasing with the escalating activities of retail chains --- Indian and foreign.

Significantly, a Naional Bank of Rural Development (NABARD) survey found that in April-May onion was purchased from farmers at Rs 8 and hoarded in unusually large quantities in warehouses and then sold for Rs 70 in retail in August and Rs 100 in October.

The Food Secretary Ashish Bahuguna asserts that the rising prices rises are artificial as there is no shortage of production at any level. Also, he queried why such a large devastating manner had not happened earlier.

Even international rating agencies like Standard & Poor smells a rat and has issued a veiled threat of downgrading India to the lowest BBB minus. Undeniably, any negative rating tends to adversely impact investor sentiments and the Government’s image. Recall, the stock market started to crash and the rupee slid after the S&P’s warning.

In fact the price rise which started with onions has now spread to all other vegetables, none of which sells at less than Rs 60 a kg. Even leafy vegetables are selling at over 200 per cent their normal price. According to estimates the artificial price rise has benefited the wholesale and retail trade to over Rs 8,000 crores.

Clearly, an unprecedented situation. True, there are seasonal variations in prices which are not unnatural but what is happening now is much beyond this.  Besides, there is little rational for increasing potato prices at a time when new arrivals are scheduled.

Pertinently, the difference in wholesale and retail prices are staggering. Even at the worst of times onion was available at Rs 55 a kg in the wholesale market. But the phenomenal difference in retail at Rs 90 to 100 only points to a scheming retailing system. Whereby, hoarding is possible with large cash.

Earlier, normal retailers or even wholesalers did not have the capacity to hoard in such large quantities as it meant blocking money for a longer period. This was anathema for wholesalers who are known for operating on thin margins to hold their stock for long.

This only means that someone with extra retaining power is twisting the market dynamics. It calls for the votaries of large chains, who entered the market with a promise of sales at cheaper rates and removal of middle men, to study their modus operandi. The more they are proliferating, worse are the woes of consumers. This is not restricted to vegetables only. Even rice, wheat and other products are being sold at extremely high prices at retail chains.

Almost all major chains have been profiteering. Be it Reliance Fresh, Easy Day (which had a tie-up with Wal-Mart), Metro, More or Big Bazaar, every one is basking under the sun. They are selling commodities at prices of “unorganized” retail. Wherein their promise to check prices in the Indian market not only appears unreal but it seems they have been abating the trend.

Consequently, it is not easy to comprehend why these organized retail chains are competing with the so-called “unorganized” retail sector in selling onions for instance, at around Rs 100, while its purchase price was not more than Rs 55 in wholesale. It is presumed that the retails chains made their purchases at lower prices using a different mechanism.

Further, even in the worst scenario these chains could have sold onions at Rs 60 and checked the wary market. The Government and its agencies needs to probe why these chains did not do so.

Arguably, since retail chains float on large cash, presumably they purchased onions from farmers at a nominal price of Rs 8 in an organized manner and then hoarded it at large warehouses and cold storages. Even if that be the case, they could have offered onions and other vegetables at far lower prices, perhaps no more than Rs 15 a kg.

This did not happen According to the NABARD study, “In an ideal situation, with no hoarding or unfair practices and wastage at the ‘normal’ 25 per cent of the 150 million tonne crop, onions should be available at Rs 14 per kg.”

Indeed, NABARD has implicitly expressed serious doubts whereby these retail chains have manipulation prices. It is not unlikely, that in many cases the organized sector tipped wholesale operators to function on their behalf to manipulate prices.

Importantly, the reform S&P’s has called for in its latest report is not only about policy formulations but also about market operation methods. The agency underscores a marked slowdown in India’s real growth which complicates the Government's debt dynamics and ability to implement reforms. If such methods, are not checked by the new Government there would not be any improvement in India’s economy.

This is a significant pointer as prices are fundamental to any economy. If prices are manipulated in such a massive way it is bound to hit all operations. Already, industrial productions have taken a hit as high prices leave people with little spare money. Thus, when demands fall, it has a cascading effect on jobs and profitability of the corporate, most of it in the negative.

Sadly, even Government finances are not rising the way they should have. With economic growth slowing to a low of around 4.5 per cent the turnaround has to come with a check in prices. But the Government has turned a blind eye to retail chain operations since December 2010, when many experts expressed fears of such manipulations. For reasons best known to it, the powers-that-be not only ignored the chains but also freed the retail sector for foreign investments.

Today, the worst is being contemplated. The Government is considering making lobbying legal to facilitate Wal-Mart as the American giant faces charges of bribery in its home country.

Notably, any Government is supposed to be the upholder of morality and ethics. And if it reneges on that and succumbs to pressures of any foreign country or lobby nobody would be able to save the Indian consumers. The UPA Government moves only mean it is not serious about controlling the price manipulations.

Alas, this is the real bane of the Indian economy. The Government needs to address people’s aspirations instead of only representing corporate lobbies as this not only endangers the economy but alongside the democratic process. Latin American countries stand testimony to this for many decades. India needs to guard itself. ------ INFA

(Copyright, India News and Feature Alliance)