Win-win situation for Punjab
Retailing in India is primarily unorganised, with 97% of the retail industry being made up of sale counters, street markets and roadside peddlers. Retailing contributes about 10% to India's gross domestic product (GDP) and nearly 6% to employment. Thus, retailing is the largest employer after the farm sector. However, the quality of employment in farm and retail sectors is not as good as in the others.RS Bawa@ HT DEBATE: Can Punjab afford to miss the FDI bus?chandigarh Updated: Sep 27, 2012 12:33 IST
Retailing in India is primarily unorganised, with 97% of the retail industry being made up of sale counters, street markets and roadside peddlers. Retailing contributes about 10% to India's gross domestic product (GDP) and nearly 6% to employment. Thus, retailing is the largest employer after the farm sector. However, the quality of employment in farm and retail sectors is not as good as in the others.
Studies have shown that it's basically small and marginal farmers who suffer while selling their produce through intermediaries. The producer's share in the "consumer rupee" is only around 20 paise (20%).
Experience of various countries shows that farmers in Indonesia and Kenya got higher prices for their produce through retail chain stores than through local markets. Some studies have shown more stability in prices received by farmers when supplying their produce to supply chain operators as compared to the traditional markets.
In some countries, supply chain companies have provided backend support to farmers in giving technical knowhow and better package of practices for improving the quality of their produce. All this led to a higher level of profit for farmers.
Punjab has about 31% marginal and small farmers and about an equal percentage of medium farmers, thus making their combined proportion about 62%. These are the farmers who suffer at the hands of intermediaries and have the least defence against exploitation as they lack access to resources for storage.
The state has surplus farm produce and there is a high rate of spoilage/wastage due to lack of proper post-harvest handling and processing, which the ordinary farmers cannot afford. On the employment front, too, Punjab is not in a good position.
The Centre's decision to allow foreign direct investment (FDI) in multi-brand retail decision would not only immensely benefit farmers, consumers and grocers, but also lead to improved quality of fruits, vegetables and other items.
With the coming of FDI, the only loss would be of the middlemen who purchase goods from farmers at a very low price and sell it to consumers at higher rates. The feeling of competition would only add to increasing the business of retailers and it would directly benefit the consumer.
People of Punjab have always been an enterprising lot. Capable of hard work and toil, it is they who must be given the credit for showing the way to abundance and prosperity with the green and white revolution. They deserve to be part of the new opportunity which FDI in retail will present.
Some Indian corporates have already entered the retail sector during the past few years, including Reliance, ITC and Aditya Birla group. In Punjab, retail outlets such as Best Price, Reliance Fresh, More, and Easy Day have been set up in recent years. Back in 1987, Punjab had experimented with the Apni Mandi model to help small and marginal farmers by eliminating intermediaries. The effort was to increase the producer's share in the "consumer rupee", which stood at 20 paise, by introducing the producer-consumer marketing channel model.
Thus, Punjab cannot and should not miss this opportunity to get a solution to some of its chronic problems. The state should say yes to FDI in retail for the following reasons:
* Of the total FDI in India, Punjab's share is a mere 0.45%. Most of the FDI has gone to states such as Tamil Nadu, Maharashtra and Karnataka.
* Punjab needs to protect interests of its large percentage (32%) of marginal and small farmers.
* The state needs to go in for diversification of its cropping pattern; for that, a support market for alternative crops, vegetables, fruits etc. is required, which can come through retail chain stores.
* Punjab needs to develop its agro-processing industry, for which private sector investment has not been forthcoming. Setting up of big retail chains will lead to investments in agro-processing also.
* The retail chains will help in diverting surplus farm produce to other regions of the country.
* Going by the experience in big cities of India, there is sufficient space for co-existence of big retailers as well as small ones.
* FDI in retail will ensure better quality of goods for consumers as also more stability in prices for consumers as well as producers throughout the region and even the entire country.
* The retail chains are also likely to create more and better quality jobs for the educated youth of Punjab.
* Most of the informal sector and small retailers do not contribute to VAT (value-added tax) collection, whereas big retailers make substantial contribution to VAT. Punjab's finances depend substantially on VAT.
In view of these reasons, it is imperative that Punjab should not miss this long-awaited opportunity of going the FDI way to improve the farmer's lot, generate employment and boost VAT collection. Moreover, the state government will have to play its regulatory role effectively. The conditions put on investors in terms of 50% investment in backend infrastructure can be utilised to provide adequate support to farmers to improve the quality of their produce and ensure remunerative prices.