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State should make the most of this opportunity

It is ironical that the Bharatiya Janata Party (BJP), which was once the champion of liberalisation in the retail market and had moved the case for foreign direct investment (FDI) in the retail sector when in power at the Centre, has now completely reversed its stand. Either they did not know what they were doing then or do not know what they are doing now. Capt Amarinder Singh writes

chandigarh Updated: Sep 24, 2012 23:40 IST

It is ironical that the Bharatiya Janata Party (BJP), which was once the champion of liberalisation in the retail market and had moved the case for foreign direct investment (FDI) in the retail sector when in power at the Centre, has now completely reversed its stand. Either they did not know what they were doing then or do not know what they are doing now.


As for the Akali-BJP government in Punjab, deputy chief minister Sukhbir Singh Badal first welcomed the move for FDI in retail and then just as suddenly did a U-turn as politics took preference over interests of the state. Sukhbir's letter to union commerce minister Anand Sharma last year, supporting FDI in retail, is testimony to that.

The Indian retail sector, currently valued at $400 billion (more than Rs 21 lakh crore), comprises mainly of the unorganised segment and is dominated by more than 6.8 million small retailers (karyana stores) and small vendors. Modern retailing in India accounts for less than 8% of the total retail market. China has 20% of its retail in the organised sector, Brazil 36% and Malaysia 55%.

The fear always projected is that by permitting FDI in retail, the unorganised sector, the karyana and small corner shops will suffer. The experience is to the contrary in China, where the organised sector opened in 1992 in phases, and today comprises 20% of the retail market. While this sector grew, so did the unorganised sector, at 5%. In India, multiple reports, including those of ICRIER (Indian Council for Research and International Economic Relations) and Price Waterhouse Coopers, have reaffirmed that karyanas enjoy a special place with Indian consumers.

Their inherent advantages location, low cost, personalised service with home delivery, free credit, and convenient timings will ensure that they remain a significant retail force. Their low operating cost, 8% of sales, against 18-22% in the organised sector, would ensure their continuance.

One should only look at the entry of global food chains such as McDonalds and KFC and then see if they have had any impact on the Indian food chains such as Haldirams or Bikanerwalas or even the smaller, city-centric eateries.

To those who feel that the entry of FDI would impact our industry, as most products on sale would henceforth be imported, one needs to only look at Walmart-Bharti. In their case, imported products are just 3%, while the remaining 97% are indigenous. Those who live in cities where they exist, and are permanent customers at their local branch, would vouch for their quality and the fact that their prices are well below the market rates.

The current projected employment in organised retail will create around 2.3 million jobs, mainly for those who have ended their schooling at the Class 10 or 12 level, a section which finds it the most difficult to find employment. In the agricultural sector, its contribution to a state such as Punjab will be phenomenal, as the Congress government in 2002 visualised, by introducing the "field to fork" programme along with the Reliance group. Punjab would have broken the paddy/wheat rotation, which has become unremunerative. This would have been replaced by a higher value and density of cropping, for example, four vegetable crops in a year, which Reliance would have lifted from farmers at a price higher than what he would get in the market and they would then sell it to the consumer through their 1 lakh outlets countrywide, at a price less than the market's.

Thanks to the Shiromani Akali Dal's (SAD's) negative attitude, the Punjab farmer has lost out and so has the consumer. One wonders how the current government intends to solve the annual problem of the potato and tomato glut, which has ruined many farmers in our state and who annually dump their produce on Doaba roads. Each year, the potato farmer in Punjab gets Rs 2-3 per kg, while the corresponding market price in Delhi or other cities is Rs 22-25.

Currently in the Indian farming sector, 25-30% of fruits and vegetables, and 5-7% foodgrains are wasted, estimated at Rs 1 lakh crore. Today, an Indian farmer realises just one-third of the price paid by the consumer, against two-thirds realised by farmers in other parts of the world where marketing is organised.

According to a 2008 ICRIER report, profit realisation for farmers selling directly to organised retailers is about 60% higher than that received from selling in traditional markets such as our mandis.

In the present dispensation, there is a complex chain of procurement involving several middlemen. FDI in retail will create the enabling environment and progressive states can undertake a gradual reform of the Agricultural Produce Marketing (Regulation) Act, which will ensure direct procurement, at least of horticultural and vegetable produce from farmers, to enable them to secure a remunerative price. Modernisation of the farm sector will also lead to better practices in improving food safety and hygiene.

Prime Minister Manmohan Singh made it clear in his speech to the nation that on FDI, "according to the regulations we have introduced, those who bring FDI have to invest 50% of their money in building new warehouses, cold stores and modern transport systems." This, he added, "will help to ensure that one-third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down."

While FDI in retail is in the overall interest of the country, for a state such as Punjab, which is primarily agrarian, there could be no better opportunity than this. Our primary sector (agricultural) growth was less than 3% in the 2011-12 financial year, about 1% less than the national growth in agriculture.

Punjab rose to the occasion when the country needed food. That stage has now passed. What Punjab needs today is crop diversification into high-value cash crops, to give our farmer enough to feed his family. Wheat and paddy cannot do this. For that, we need a marketing system to handle his produce. That's where FDI in retail comes in.