Friday, December 16, 2011



Tejinder Narang .

Announcement of FDI in Indian retail was timed to send signal for more dollar remittances, ease downward pressure on rupee depreciation, diminish current account deficit, create additional avenues of employment and giving confirmation that Government’s reformist agenda is on track. All this is in long term national interest.

With rapid national growth and rising aspirations of the middle and high income groups, FDI in retail has futuristic demand. It will induce efficiency in availability of wide variety of products, services and delivery-- but to endorse that farmers will have higher realization and customers will pay less through super markets is logic of political convenience that may not be fully justified. Simultaneously to snipe at the supply chain of middle men—be it arthiys, banias, mandis, brokers, wholesalers, dealers, sub-dealers and retailers-- as “greedy” manipulators who profiteer at the cost of farmers and consumers is a misplaced articulation. Can proponents of FDI unequivocally confirm that reports of farmer’s suicides and impoverishment will disappear or diminish after mega stores set their malls?? For 63 years –this very supply chain—has supported growers and users. They cannot be castigated as economic exploiter of the society simply because Government has seen some merit in FDI and is being proactive in steering the nation out of potential financial crisis due to uncertainty raging in EU and elsewhere.

No business is inspired without intent of inherent profitability —be it kirana stores or mega stores. Profit and loss is integral part of all business activities and FDI is not coming here for charitable cherishment. Political and bureaucratic mind set imagines businesses making profits and not losses. All losses are attempted to be recovered subsequently through high profit yielding techniques.

High infrastructural overheads of departmental stores will negate lower cost benefit accruing out of large volumes of trade. The common method employed by large stores is to reduce prices of some of the essential items to provide confidence of “lower value illusion” to increase foot falls and prompt consumers to shop more of other products that are tagged with inflated prices. Gross profit margin is intelligently and intricately maintained. Except for the superior shopping experience and availability of high life style products, financial benefit to aam aadmi may not be worth the rhetoric now orchestrated. Existing kirana stores have abundant opportunity of home delivery services which will be welcome by all in ever increasing traffic jams/delays. Moreover local mom –pop stores are active sellers; mega malls with their well dressed staff are passive sellers. Pros and cons can be sighted for both models.

Macro economic environment in the country is such that some (say 20-25%) of production from Indian factories disappears unreported. This is sold and bought in cash and remains unaccounted in GDP. Taxation is circumvented thereby enabling Kirana stores in keeping prices lower and consumers do benefit. If policymakers intend to target the producers and intermediaries for this misdemeanor, then they must introspect how and why this systematic vaporization of production/consumption takes place to generate black money.

Banias and arthiyas provide unwritten credit and financial liquidity to farmers on “trust”. Farmers owe allegiance to them and have to offer them first right of refusal of their produce. Neither farmers are adept or keen to undertake banking transactions for financing their activities through Corporates. Co-operative banks specially set up to extend finances to farmers have not been able to mitigate the power of local money lenders.

Since agriculture produce is not manufactured in any factory, substantive variation in quality is natural. Traders/banias transact business of all shades of quality with growers and then dispose them off at differential values. This model may not be replicated by Corporates except that they can buy the “best” variety in large volumes.

Import intensity will increase as these jumbo marts source their items from China and elsewhere. “Genuine” SMEs will face the heat of competition. Thirty percent procurement through Indian SMEs can be veiled through maze of front companies, who may be actually importing items and selling to these mega stores with marginal value addition.

FDI, like local traders/shops, has its own strength, weaknesses, opportunities and threats --SWOT parameters. The divide is political in which the FDI policy is being branded superior to earn brownie points. Caste, color, religion, APL/BPL, rural/urban categories have already divided the society. It is best to avoid further societal split into cubicles of farmers, arthiyas, banias, wholesalers, brokers, dealers, SMEs, consumers and shoppers. All systems of trade can survive with synergy in this country. There is no room for denigration of one at the cost of the other.