RE-TELLING RETAIL

There is a sharp polarisation of views on the Govt’s recent proposal to allow 51% of Foreign Direct Investment (FDI) in multi-brand retail; depending on one’s political inclination, customer profile or business interests. Truth seems to be the casualty. To arrive at a balanced assessment some basic questions need to be asked. Why is the Govt promoting this? Who wants it? Who stands to gain? Do we really need this? One is unable to pinpoint the Govt’s compulsions. The idea that has gained currency (pun intended) is that it will attract vast amounts of foreign investment, which is good for the Indian economy. The Big Retailers (BRs) claim that this will benefit the farmers, increase employment, reduce prices and wastage of highly perishable farm produce, and offer better variety and services to the consumer. The urban middle class, “anti-corruption and pro-consumption” buyer, would be happy at this promised turn of events. The Govt, aware of the criticism it faces, has laid down some pre-conditions like 30% outsourcing from small and medium enterprises, 50% of the FDI to be back end infrastructure (a rather nebulous term), and 30% sales to small retailers. Sounds sensible. But Sitaram Yechuri of the CPM has said that his acceptance of the FDI proposal is dependent on whether it will generate jobs, enhance capacity (of what?) and bring in new technology. We also need to understand some of the basics of the retail sector, the Indian economy and social praxis. Both the UPA Govt, and the NDA before it, boasted of economic growth, which cannot be denied. But we are also told that 58% of our Gross Domestic Product (GDP) is from the Services Sector (the Tertiary Sector that includes retail). What of the Primary Sector (agriculture in this case) and the Secondary Sector (manufacturing, including food processing)? Will this FDI boost agricultural growth or food processing? The answer would depend on whether or not there is a commonality of interest between the Govt’s socio-economic goals and those of the BRs. Lets face it; business is concerned with profits, not ethics or a lofty social agenda. Will they therefore help farmers, small manufacturers and retailers? Doubtful, as not every corporate is a Tata or a Premji. The BRs believe in economies of scale, so they will always prefer big manufacturers. They will in all probability squeeze the farmers; and why would small retailers go to them for supplies? It does not seem plausible. What of the profits generated? Will they not be repatriated? So how does this FDI help the Indian economy, other than being a quid pro quo for Indian business in a globalised world? The present supply chain is that raw materials (specific to food) are purchased from the small and unorganised grower by agents (mandis). If it has to be processed it goes to a manufacturer. Its finished product goes to a Carrying & Forwarding Agent (CFA), then to a super stockist, distributor, retailer and finally to the consumer. So there are several stages in the chain. Obviously each player benefits through a value add on. How will the BRs operate? Will their procurement be directly from small producers? Will they do their own manufacturing/ processing? What of their own supply chain of central warehousing, local warehousing, transportation, overhead costs and retailing? Are they not just replacing one system with another? So what real benefit to the economy or to the consumer? What if one of these BRs picks up the entire wheat, sugar, potato or onion stock, and hoards it in its huge warehouse for future trading and profiteering, thereby creating artificial shortages of essential commodities? Would this not be an infringement of the Essential Commodities Act? Besides, if Kishore Biyani’s Future Group has been a success (from the consumer’s point of view) why can’t other Indian players follow suit? If we have space and missile technology, and are world leaders in IT services, do we really need Walmart to teach us how to buy and sell; or how to make jam and ketchup? Ironically, Biyani, and Goenka of Spencers, are already planning to sell off their stakes to the firangs, post FDI! What of employment? If one supply chain system is replaced by another, how much more employment will it generate? As Yechuri asks, what new technology will they bring in, or what capacities will they increase? Perhaps the only increase will be in consumer spending, using all kinds of marketing tricks. BRs know, better than anybody else, the psychology of marketing, and how to fine-tune it to maximise sales. Let’s be frank. How many times have you been to a BR and not come back home saying that you had spent more than you had intended? If you think that BRs will respect Indian laws and sentiments, forget it. Just pick up a cola bottle. It does not specify the ingredients, which every type of processed food is supposed to stipulate. This shows the muscle power of the BRs. What of Indian thriftiness, the urge to save, which has been the strength of the non-resident Indians (NRIs), and even saved us from the last global economic recession? Will the BRs temptation to spend, dent the Indian’s tendency to save? Complex questions that don’t have simple answers. Lest I sound one-sided, we should also look at the positive side of organised retail. For one, all transactions are accounted for and tax paid, thereby generating revenue. In contrast, how many provision (kirana) stores ever give a cash memo? Products will be of a good quality, with correct weight and date. When we buy from a kirana store do we ever weigh our loose purchases when we get home, or even tally the amount charged? There will also be a greater variety, thereby giving the consumer a better choice, as also time saving. Will foreign BRs succeed in India? Will they destroy the small kirana, stand alone and mid-level departmental stores? Will they increase agricultural production, and reduce wastage through better storage and processing facilities? Only time will tell. By a strange co-incidence this issue has erupted when Padmavibhushan Dr Verghese Kurien is celebrating his 90th birthday on 26th November. He is the father of the White Revolution that has transformed India into the world’s largest milk producer. More importantly, this was achieved through the co-operative system, where the villagers themselves were the stakeholders and the beneficiaries. If the Govt was genuinely concerned about the social security of farmers, it should have pursued the farm produce co-operative system with full vigour, supported by the Central Warehousing Corporation and the Food Corporation of India. What is the role of Govt? Sure it should exit from non-priority sectors like hotels, airlines and condom manufacturing. But it cannot abdicate its social responsibility, be it in health, education or agricultural support. It cannot feign helplessness, like the recently slapped Agriculture Minister, Sharad Pawar, declaring that he cannot control rising food prices. The Govt must take the development bull by the horns, instead of catching the bull by the tail, through FDI in retail. What a tale to tell the next generation! * The writer’s family has been established in business for 153 years, including 19 in organised retailing.