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To market, to market

If all of us benefit but a small fraction who are traders do not, is that grounds for holding back FDI in retail? Karan Thapar writes.

columns Updated: Sep 30, 2012 22:05 IST
Karan Thapar
Karan Thapar
Hindustan Times
Karan Thapar,FDI in retail,rural economy

'There's only one question about FDI in retail that matters.' It was, admittedly, a strange way to start a conversation yet it also clearly suggested that Pertie had thought about the subject and come to some sort of conclusion. But if his intention was to provoke curiosity I willingly fell into the trap. "What's that?" I asked.

"First," he replied, deftly avoiding my question, "let's agree FDI in retail is a boon for farmers and consumers. Did you know 30 or 40% of everything our farmers grow is wasted? It never gets sold and so it's never eaten. Second, farmers only receive 30% of what a consumer pays for grain and as little as 15% for horticultural produce. So if FDI, in doing away with middlemen, increases their income it can only be beneficial."

How could I not agree? Additionally, if farmers earn more they'll spend more and that will boost the rural economy. The ultimate result will be more jobs and a better life style for the 66% who live in rural India. That's two-thirds of India.

"All right, now what's the one question that matters?" But Pertie still wasn't done with his artful prevarication. "Wait," he said, infuriatingly. "Let's also agree that FDI is brilliant for urban consumers. It will reduce prices, ensure quality and make for easier shopping. That can only be good news."

"Sure," I said impatiently. "But what's the one question that matters?" I was beginning to wonder if there was one. Perhaps Pertie was simply stringing me along.

"Will it harm small retailers and kirana stores? And, if it does, how much does that matter? That's two questions, actually, but think of them as one."

"And what's the answer?" I could sense that Pertie's approval or disapproval of FDI would hinge on this. So, now, I really wanted to know.

"It's not entirely clear. If you go by what happened in Thailand, 60% of small retailers could shut down within as little as five years. But if you go by the Chinese experience then small retailers could grow by over 30% in the next eight years."

"So how do we decide which will happen in India?" This was becoming both perplexing and intriguing.

"Consider two more facts to help you decide. In Indonesia, 10 years after the introduction of FDI in retail, 90% of the trade remains in small Indonesian hands. Second, even after 12 years Walmart in China still loses money and its market share seems to be shrinking, not growing."

"Hmm," I replied reflectively. "Now if you add to all of that the fact that, unlike Americans, we won't be driving to hypermarkets and buying in bulk, I guess our kirana stores will survive. But, even so, some will suffer. How much would that matter?"

"Look at it like this, 66% of us are farmers or live in rural India. A 100% of urban Indians are consumers. If all of us benefit but a small fraction who are traders do not is that grounds for holding back FDI?"

Again, I could hardly disagree. In fact, Pertie's conclusion reminded me of Montek Singh Ahluwalia's telling analogy: "If someone said the advent of the taxi threatens the tonga would you put a stop to taxis?"

No, of course not. Therefore, how can you ban FDI in retail because a section of traditional old-fashioned retail is threatened by it? What about the rest of us?
Views expressed by the author are personal.

First Published: Sep 29, 2012 21:25 IST