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Retail:the twist in the tale

There is a firestorm raging in the country over allowing Foreign
Direct Investment (FDI) in multi-brand retail. It is being contended
that large format multi-brand retail a.k.a. LFMBR (apologies for the
alphabet soup) will wipe out the local kirana shops and destroy the
livelihood of millions of people. Excuse me! The LFMBR business model
is already operational. Some of the existing chains even have
international collaborations. So let us try to understand the issue
honestly. What is really being asserted ? If a LFMBR chain is owned
by Shri Janardhan Singh, then the nothing will happen to the kirana
shops. But if Janardhan goes into a joint venture with John Smith and
John owns 51% and Janardhan owns 49% , then all hell will break loose.
The change of ownership from desi to videshi will be disastrous for
the small trader and the hapless middlemen!

The cabinet decision of September 14, 2012 does nothing more and
nothing less. It allows for 51% FDI. The LFMBR has been open for
business in India for many years. We have brands like Reliance,
Spencer’s, Bharti, Big Bazaar, Pantaloon, Westside and Shoppers’
Stop. But the argument runs like this: the foreign-owned companies
will come in and grab market share with their deep pockets and
predatory pricing. Eventually, they will squeeze the consumer and the
farmer after destroying the middlemen first.

Let us do a reality check. We have FDI in many sectors of our economy.
Is there any evidence of extinction of Indian entrepreneurs ? If FDI
by nature is evil, then the debate should be about allowing FDI
---whether it is in aviation, insurance, manufacturing, banking,
telecom or information technology. Why is the argument limited to
multi-brand retail only?

There is another argument: the foreign players will only invest in
brand and customer acquisition and not in post-harvest
infrastructure. Hello! Have you really read the Cabinet note? At
least 50% of the total FDI brought in must be invested in “backend”
infrastructure within 3 years. Backend infrastructure has been defined
to include “processing, manufacturing, distribution, design
improvement, quality control, packaging, logistics, storage, warehouse
and agriculture market produce infrastructure”. It is also
specifically clarified that the following costs will not be counted in
computing the 50% : cost of land and rentals.

What are the arguments against FDI in retail? There are publications
by labor unions in the West which allege that some large format
retailers have indulged in questionable labor practices in the US and
Europe. I am a strong advocate of fair treatment of workmen and our
regulators must be vigilant. That said, let us objectively examine the
ground reality in India.

We may have millions of unemployed youth in our country. We need to
provide them with gainful employment. The retail sector can provide 10
million new jobs in 10 years to our young men and women according to
the Indian Staffing Federation. That makes Retail the largest
generator of organized employment in India. Already the organized
retail sector has created hunderds of thousands of jobs. .

If you are not an armchair economist or an agitator by vocation, , you
would have interacted with employees of kirana shops who are part of
the unorganized labor in our country. You surely know how much they
earn. You are also aware that they do not receive any social benefits
like PF or Gratuity and they are not covered by medical insurance.
Have you ever asked a youth in your neighborhood whether he wants to
work for Pantaloon or Walmart or does he prefer the kirana shop owned
by Ganesh Bhutoria or Kartik Mallik? How can a politician decide what
is good for our youth when he neither can create jobs nor can he make
an iota of contribution to the improvement of working conditions of
the unorganized labour in kirana shops.

What about the consumers? It is being claimed that the consumers will
be exploited by large-format retail chains owned by foreign
shareholders. How are we sure of that? The typical
pseudo-intellectual in India often arrogantly argues that illiterate
Indians cannot vote wisely. The aam aadmi in India has proved these
babus wrong again and again. But the babu is not interested in
data. He regales in fact-free and fiction-rich argumentation. Even
though he may be invariably wrong, seldom is he in doubt. His
argument goes like this: the Indian consumer does not know how to
vote with his wallet. Therefore, he will fall prey to predatory
pricing and the glitter of marketing. He will be exploited and his
wallet emptied. Therefore, only the rich will exercise their choice
by shopping in Singapore, Paris, Dubai and London. For others :Be
Swadeshi, Buy Swadeshi.

In Kolkata, I often go to shop at Metro Cash and Carry which is
owned by German shareholders. My fellow shoppers are clubs, hotels,
restaurants, business establishments, caterers and-hold your
breath-local kiranas. Once I met in Metrothe owner of my local
kirana shop who told me, with a tinge of embarrassment, that the
wholesale price left him with a margin to make some money. Thus, far
from wiping the local retailer, Metro is allowing kiranas to survive
and grow in a new eco-system.

Of course, layers of non-value adding middlemen are affected. But why
should the consumer ,who shops with his hard earned money, shed tears
for them? Let us examine the position of the Janardhan Singhs who
own large format retail chains. The argument is that they will become
extinct. But then are they turkeys who are voting for early
Christmas? Why are they are welcoming FDI in retail?

I think the Prime Minister has a very valid point when he says, “We
recognise that some political parties are opposed to this step. That
is why State governments have been allowed to decide whether foreign
investment in retail can come into their state. But one state should
not stop another state from seeking a better life for its farmers, for
its youth and for its consumers.” Touche.