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.