A vegetable market meters away from the prime minister’s official residence is a red herring. Grassy spring onions and juicy tomatoes could be mistaken for abundance. Yet, their high prices are only a sign of scarcity. A late monsoon has ravaged horticulture, cutting supplies.
Without cold storage, half of India’s vegetables rot at the farmers’ end. Some of it perishes at local wholesale markets.
Middlemen, who tightly control India’s supply chain, move it to the cities after bidding up costs along the way. They rose 20% in August.
Allowing 51% FDI in multi-brand retail will now pave the way for giant retailers like Wal-Mart, Tesco and Carrefour to set up deep-discount stores, which could change all this.The new FDI norms will bring in supply-chain investment, which has lagged because unlike China, India began its reforms in industry first, not on farms.
The possible impact of big stores on millions of small traders and stand-alone stores has however sparked a political row. Their inventory is like a superfast sourcing highway. They’re so huge that they can instantly tap into thousands of suppliers and badger wholesale food suppliers to keep prices low on everything.
For the middle-class, this could be tempting. “FDI would break monopoly of traders, resulting in better prices,” says Ajay Jakhar, chairman of Bharat Krishak Samaj. Big stores can take the bite out of food prices.
But there’s major evidence of adverse impacts on wages and small retailers. A 2007 UC Berkeley study found Wal-Mart “lowers the average retail wage”. A Journal of Urban Economics, 2010, study found “large, negative effects” on retailers within a 5-mile radius.
The government insists its move will create jobs and fight inflation. For instance, at least half of the FDI should go into back-end infrastructure, such as cold chains, to curb food wastage. Also, 30% sourcing will be from small suppliers. “Both modern and traditional retail outlets are likely to coexist,” states an Indian Council of Research on International Economic Relations study. Cab driver Rajiv Yadav says he couldn’t care less, as long as his expenses came down.