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The experience in India so far has been that
the malls are just another version of the old Indian bazaar
where different shopkeepers sell their wares in close proximity
with their competitors. What the government has now decided is
that foreigners can also invest in the capital of these
organized Indian retailers to the extent of 51% which means that
these foreign investors will be in a position to enforce their
own business models and their modes of service. Thus, so far as
the question of mere ownership is concerned, it should not
matter either to the consumer or to the farmer or to the
manufacturer of consumer goods where the capital for setting up
the mall has come from. Ownership is the least bothersome part
of this entire debate.
The real debate should be on the relative
business models of the foreign and the Indian retailers. The
foreigner retailer's first and foremost objective always is to
offer the consumer the widest possible choice in terms of price
and quality of the goods sold at his outlets. This he ensures
through his worldwide sourcing networks, his deep pockets and
his massive buying clout with which he can force down the
prices. Since the orders placed by these international retailers
are in millions of pieces of each item, the vendor is prepared
to supply the same even at the barest margins because of the
sheer volume of supplies.
For the same reasons, the multinational
retailers are in a position to enforce quality discipline on
their vendors worldwide. Institutionally, therefore, the
multinational retailers are in the best position to provide a
meaningful choice to the customers worldwide. Thus, for
instance, a multinational store chain would display the Reebok
shoes made in America, Europe, China or Bangladesh in the same
store in adjacent stands at different prices ranging perhaps
from US$ 20 to US$ 200, leaving it entirely to the customer to
pick up what he wants. The customer can, therefore, only benefit
from the latest government decision and there is no reason for
him to complain.
 How
about the Indian industry? It is not going to be adversely
effected because the quantitative restrictions on all imports
already stand withdrawn and the markets are flooded with the
foreign and, more particularly, the Chinese goods. The tariffs
on imports that are applicable today will continue to be
applicable to the imports of these multinational retailers as
well. The Indian manufactures, therefore, will not be at any
further disadvantage with the opening of the retail sector to
FDI.
What about the farmers? Well, the minimum
support prices for several farm products are going to remain
applicable and there is no danger of the multinational retailers
driving down the prices below those levels. Yes, there are no
minimum support prices for vegetable, horticulture meat or
poultry products. But these items are already the cheapest in
India as compared to the prices prevailing in most other
countries. The multinational retailers will be foolish to import
the same from other countries at higher prices.
On the contrary, they might introduce
proper sorting, grading and polishing and offer higher prices to
the farmers for higher quality goods. This will have the effect
of pushing up the prices for the farm products to some extent
rather than pushing them down. There is nothing for the farmers,
therefore, to be apprehensive about allowing FDI in retail.
How about the kirana shops and the
adhtiyas and the impact of the new policy on employment in the
country? Well, there, one is on an uncertain ground. There are
millions and millions of people engaged in these activities and
they are naturally apprehensive about the threat to their
livelihoods.
A wrong claim is being made by the
advocates of FDI in retail that these retail chains will
establish direct contact with the farmers and with the small
scale producers thus obviating the need for the middleman and
the costs associated with that. The multinationals are also
going to need their services and the only difference will be
that their activities will become more formalized and more
transparent.
They will have to operate as per the rules
of the multinational chain stores and within the parameters laid
by them. And those who will be willing for this change-over will
get absorbed in the new set-ups. Yet, some could be rendered
redundant but that would get offset by the new front and
back-end jobs that will get created when the country migrates to
a higher level of shopping experience.
The kirana shop is sure to lose some
clientale and come under more stress but that is regardless of
whether the mall is owned by Walmart or Bharti. But the country
is vast enough to allow different systems to co-exist. The
introduction of taxi services in cities has not thrown the
auto-rickshaws and even the cycle-rickshaws out of business. But
if the country has to cater to the aspirations of increasing
numbers of its people to a better life, it is going to need more
and more capital, all of which is not going to be available from
internal accruals alone. FDI in retail is, therefore, something
whose time may have finally come. |
