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Retail Reloaded: the big pic

A new retail regime is set to be unfurled, and in all likelihood, Delhi could be its first bastion, Gaurav Choudhury and Dipankar Bhattacharyya report. FDI: who gets what

business Updated: Oct 26, 2012 23:59 IST

A new retail regime is set to be unfurled, and in all likelihood, Delhi could be its first bastion.

Delhi chief minister Sheila Dikshit has started to dismantle the state's Agriculture Produce Marketing Act to allow international supermarkets like Wal-Mart and Carrefour to buy food directly from farmers.

She expects Delhi to be the first to receive foreign direct investment in multi-brand retail after the United Progressive Alliance government left it to states to decide whether they wanted to open up the sector.

"We will start with the states that have said yes and demonstrate the advantages that organised retail will bring in terms of employment, better farming practices and in helping small and medium traders and manufacturers. I think once that happens, the people sitting on the fence will move over," says Raj Jain, president, Wal-Mart India.

But not everyone is convinced. It has been more than two years since Rajendra Kumar downed the shutters on his 100-square-foot kirana (grocery) store in Ajmal Khan Road area of Delhi. Kumar says the Big Bazaar outlet at Rajouri Garden took away his business.

It takes ten minutes on the Delhi Metro for residents of Ajmal Khan and adjoining Karol Bagh to reach the Big Bazaar store. "A small shopkeeper can't match the discounts offered by them," says Kumar.

If four million organised retailing jobs are to be created in India in the next three years, Wal-Mart will need to open over 18,600 supermarkets, says Praveen Khandelwal, secretary-general, Confederation of All-India Traders (CAIT). This means 644 stores in each of India's 53 cities.

The pros and the cons are clashing on the issue enough to create confusion. A third of the states have said yes to FDI in supermarkets, another third no and the rest are undecided.

Opposition to the move revolves around the gains from better supply management of food between the farm and the kitchen.

"Apples from Himachal Pradesh can be found all over the country. Fresh water fish is transported from Andhra Pradesh to faraway Assam. These are working in a perfectly efficient manner and you don't need FDI to set up such efficient supply chains," argues Yashwant Sinha, former finance minister and BJP leader.

The efficiency of the existing supply chains, however, comes at a cost to the farmer. "Direct procurement will eliminate three to four layers of middlemen who are now taking away 40-50% commission without any value addition," points out Chengal Reddy, secretary-general, Consortium of Indian Farmers' Associations.

"The retail chains are very touchy on the quality of fruits and vegetables. A minor blemish on the produce and they simply drop it," says Avinash Singh, a wholesale trader at the local vegetable mandi in Amritsar.

In both Amritsar and other cities like Bangalore, only 25% of fruits and vegetables go modern retail formats, say industry officials.Wal-Mart's Jain says this is the outer limit for most emerging markets because large stores cannot match corner shops in convenience.

This naturally limits the benefits to farmers. "The FDI policy allows stores to be set up in cities with a population of more than one million. There are four such cities in Punjab. Assuming that four large stores are set up in each of these cities, how many among the millions of farmers of the state will benefit? My estimate is that less than a few hundred," reckons Balbir Singh Rajewal, president, Bharatiya Kisan Union.

Khandelwal feels modern retail may, in fact, hurt farmers. Milk producers in the US get only 38% of the consumer's dollar, he says.

In the UK this dips to 36%. However, in India the producer gets more than 70 paise of every rupee consumers spend on buying milk.

India has built up a big cooperative movement around marketing milk that has significantly cut waste. But food processing has skirted other food groups.

FDI in food processing during 2007-12 has fallen woefully short of the targeted $25 billion, points out BJP leader Sinha.

While nationalist views believe a strengthening of the local support system may benefit farmers, those who welcome sing praises for the Wal-Marts and the Carrefours.