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To reap what they sow

FDI in retail will take our farmers out of the morass. We can’t afford to turn away.

india Updated: Nov 29, 2011 21:40 IST
Hindustan Times

Opposition to foreign retailers in India has hinged on the fate of its shopkeepers. Retailing employs around 40 million Indians, who among them did $450-odd billion of business in 2009-10.

Walmart, the world’s largest supermarket chain, too does business of $450-odd billion. It hires two million people globally. The prospect of 20 shopkeepers being squeezed out by every person Walmart hires in India is, thus, not far-fetched. Yet this is only a part, albeit the scary part, of the story the political opposition to foreign retailers is flogging.

The 7% of India’s workforce employed in retailing are an extension of the immense disguised unemployment in agriculture. The man selling his wares on a pushcart in an Indian city ekes out a marginal existence because he did not have a factory job waiting for him when he left the farm searching for a better livelihood. Unless manufacturing can absorb a larger chunk of the population moving out of agriculture, retailing will remain India’s unhappy hunting ground.

Life here is not pretty. India has one shop for a hundred people. The atomisation of the industry robs shopkeepers of any pricing power that would allow them to scale up. Operating in the unorganised sector, 98% of the trade has no access to the institutional supports of business like credit.

As it exists today, India’s retail sector has no hope of acquiring the efficiencies of a modern industry. Despite this, there has been no widespread reaction to large-format selling. The ‘cash-and-carry’ wholesale trade was opened up to foreigners nearly a decade ago, and Metro and Carrefour have expanded their footprint. Walmart has set up back-end infrastructure for big-box stores after the government opened up this side of the business to international players. Meanwhile, India’s corporate retailers have also come up with the proof of theory as well as proof of execution.

Even a partial roll-out of multi-brand global retailing is better than none. Foreign investment in cold chains has not materialised because India has denied their developers access to retail sales. India desperately needs the refrigerated trucks to bring vegetables into kitchens instead of rotting in the fields. The most immediate way to raise farm productivity involves enhancing the efficiency of the internal food trade.

State governments cannot keep passing the buck to the Centre when the price of food triples between the farm and the plate. Sustained food inflation can generate a bigger political backlash than a vocal constituency of traders. If the Centre were to blink now, we would turn away from a vital reform threshold. Having come this far, it makes sense to try out modern retailing. If for nothing else than merely to bust a few myths.

First Published: Nov 29, 2011 21:39 IST