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Will large retail kill the kirana?
January 03, 2007
"Doomsayers have ignored the fact that so far, this has not been the case even as the size of modern retail has already crossed Rs 60,000 crore. They have also overlooked the benefits of cash-and-carry retailing".
After many years of mere rhetoric, India is finally poised to see the emergence of truly large-scale, modern retail businesses. While Reliance has been first off the mark, and is already beginning to make its presence felt in the few cities it has started operations in, 2007 should see the debut of Wal-Mart (along with Bharti), and AV Birla group's retail stores. During the same period, several current incumbents, including Future Group and Metro, would further extend their footprint in urban India, while Godrej, ITC and DSCL will enhance their rural operations. 2008 may well see the entry of Carrefour and Tesco, amongst others.
Doomsayers have been screaming hoarse for many years that modern, large retail would mark the demise of traditional, small Indian retail. They have conveniently ignored the fact that so far, this has not been the case even as the size of modern retail has already crossed Rs 60,000 crore and players like Future Group already operate many large-format Big Bazaars and Food Bazaars across India that have yet to lead to mass closures of the relatively small retailers in their neighbourhood. The naysayers have also failed to speak to the hundreds of small retailers who have already experienced the benefit of doing their own purchases from modern "wholesalers", better known as cash-and-carry retailers (like Metro). The cash-and-carry wholesale business, while still in its infancy with just three significant locations (all from Metro) functional so far, has already been seen as one of the big business opportunities by most of the major retail players and it is no surprise that
Future Group, Reliance and Wal-Mart are all readying to launch their own versions of the same. It is likely that some other players may follow suit. Technopak estimates that the number of cash-and-carry outlets could well cross 500 within the next six-seven years and at that time, serve more than 2.5 million of the over 12 million small retail businesses by offering them the convenience of buying quality merchandise under one roof, at substantially lower prices than what their traditional wholesale channels can provide. The benefit of this, of course, will then also percolate to the tens of millions of households being served by these small retailers.
What the Left and other antagonists of modern retail have also failed to acknowledge is the recent emergence of agriculture on the agenda of leading private business houses. Till recently, ITC seemed to be the lone voice trying to bring agriculture and the farmer on the national agenda. They have now been joined by Reliance, Bharti Enterprises, and Godrej, among others, and this list will only grow longer as other large Indian and international players make an entry in food and grocery retail. In the coming years, I have no doubt that Indian agriculture would witness the next generation of the Green Revolution and its positive impact will be felt by all. By the way, the Indian small and medium enterprise sector can also expect a similar boost as Reliance, Wal-Mart and others start working with thousands of such enterprises to ensure that the billions of running feet of retail shelves created by them are always well stocked.
Finally, it would be realistic to expect that the collective effort of the new large entrants in the retail sector would lead to rationalisation of various archaic laws like the APMC Act, the Shop and Establishment Act, restrictions on intra-state movement of food and other commodities, and so on. The benefits will not only accrue to these new large retailers, but also to millions of small shopkeepers and traders who are otherwise left to face the vagaries of an inefficient supply chain and extortion from the army of various inspectors representing local municipal and other agencies.
"FDI in retail would end up displacing jobs, rather than creating them. It will only add to the jobless growth. The argument of technological advancement in the sector is also specious".
Commerce Minister Kamal Nath has announced that it is his intention to further open the retail sector to FDI. This is on top of allowing FDI in single brand and 100 per cent FDI through the automatic route in the cash-and-carry segment. The results of these steps are for all to see, chiefly the back-door entry of retail giant Wal-Mart in the Indian retail space through a deal with Bharti Enterprises. The Bharti-Wal-Mart deal was truly a grave violation of the spirit of the existing regulation which denied FDI per se in the retail sector.
The Left has all along opposed FDI in the retail sector. And the media has not wasted any time in firing its favourite target -- the convenient punching bag -- the Left. It sees the Left, once again, as a spoilsport in this great celebration of the "market" and "consumers".
Therefore, setting the record straight would be in order. The Left, and for that matter, the CPI(M) in particular, has not been opposed to FDI, as such. But in a country where unemployment continues to remain the biggest challenge, the entry of FDI and the response to it have to be tempered with certain critical considerations. FDI must be able to supplement our search for domestic investment, augment productive capacities, generate additional employment and provide for value-addition in technology. Without these, it is only going to further burden the national economy and can at best accentuate the "jobless growth", which we are already witnessing.
It is necessary to subject the possible impact of the entry of FDI to a precise scrutiny from the standpoint of these criteria. Even the most ardent advocates of FDI entry are not claiming that productive capacities will expand. Neither are they offering any study to substantiate the claim that employment will grow. They are only projecting how many can be employed in an FDI-driven new set-up, but are not contrasting it with how many jobs such a regime would displace. As far as technology is concerned, retail distribution networks do not involve any new technology gain.
Of all these questions, the issue of employment is the most crucial right now. Retail is the second largest employment-generating sector in the country. The findings of the Fourth Economic Census, 1998, point to 8.36 million own account enterprises in the country; 45.8 per cent of which belong to the retail sector. In urban areas, it is even higher � 50.5 per cent. In everyday terms, they are the neighbourhood kirana stores, many of which are popularly referred to as mom and pop shops, indicating the nature of family livelihood they generate. Data is now available, which shows that growth rates in organised retail driven by domestic big corporates are much higher than the growth in the sector as a whole.
A preliminary study shows that retail sales in India are around Rs 3,12,180 crore (this is around 11 per cent of India's GDP at factor cost at current prices in 2004-05). With this projection, the turnover per employee in the Indian retail sector comes to around Rs 78,045 (taking total employment of four crore). In contrast, the turnover per employee for Wal-Mart International comes to around Rs 74,18,332 (based on the annual report of the company for 2005 available on their website). This is 95 times the present Indian retail figures. The prospects for job creation are really great indeed!
In fact, the mad rush among top Indian corporates for this space calls for a comprehensive regulatory regime for the sector, because domestic corporate-driven organised retail poses the same threat to employment as FDI-led retail. This is the story behind the present excitement in the Indian retail sector.