Finally, after the hurly burly at the Indian parliament regarding FDI that tended to almost disrupt another of the “Brief” working sessions, the juggernaut finally came to an end in the Winter Session – 2012. Leaders from both the Ruling & Seemingly in coalition government as well as the Seemingly divided opposition had been having a carnival of sorts for an extended period over an issue that most of India seemed to have lost an idea of. Finally, when the debates took place on December 6, 2012, it just turned out to be a session wasted in rhetoric and in honor of the humble veggie – The Potato.
BJP, the only credible answer to Congress and popularly “Believed” to be a Right-wing nationalist party just till the other day, took a stance that the Left-wing must have been both proud and surprised of. Its opposition to FDI in retail circumvolved mainly around Fear – of the Big Retailers (especially the Beast of Bentonville) eating away the Kirana stores (our neighborhood puppies); of millions of job losses at the cost of no new additions; benefits of big retail value chain (from farmer to retail store) –being passed on neither to the end consumer nor to the farmer, thus, a loss-loss game for farmer and consumer.
Congress, meanwhile, which has gained notoriety in recent times because of its Con games, suddenly seems to have gained the wisdom found lacking for the past almost 4 years. The PM staked his pagdi in favour of FDI in retail while the congress’s rhetoric mostly mirror imaged BJP’s.
But in the conundrum of the big FDI retail fight, the moot point got lost. Most democratic governments work in a utilitarian mode – maximum good for the maximum number of people (technical details of utilitarianism can be avoided here). If utilitarianism is what governments must work for then does FDI really act utilitarian?
According to me, FDI in retail in India would be a big dampener and BJP needn’t have wasted the precious little scope of maneuvering – which has already been relegated to rank outsiders like AAP – and little time it had before the general elections home in. I shall throw light on some of the points that I think trivialize the debates held in our parliament.
To start with, typically Big retailers need Big space to park themselves and space / real estate comes at a premium in India. For big retailers to be able to provide goods to consumers at prices lower than the competition they need to keep their fixed costs (ex: Real estate) and variable costs (ex: employee salaries) at a minimum. Considering employee salaries can’t be done away with, there is very little option for Big retailers to situate themselves within the precincts of big cities where price of estate remains low. In cities like Mumbai, Delhi and Kolkata, where there is hardly any real estate to negotiate, locating outside the city would for all pragmatic purpose remain the only option. And, to expect a person to traverse the city just to gain a few cents in discount can be a fool’s idea. +1 to Kirana shops here, who breach the width and depth of the cities and the city by-lanes to provide the right access to the goods that the consumers need.
Secondly, in countries like USA where 80% of the population owns personal vehicles, city traffic & roads permit quick transit time enabling residents to travel longer distances to avail big discounts. None of these are true for India, leaving little scope for residents to leverage the lower prices, that the retail giants have to offer, as people have to travel longer distances. -1 for Consumers & -1 for Big Retailers as they won’t have huge foot falls.
Thirdly, the government expects retailers to not only invest in the front end but also in the back end and in the process build cold chains. The government’s argument: “We need cold chains to prevent rotting food grains and big retailers have the financial might to invest in cold-chains – investment in cold-chains would prevent gargantuan wastage of food – in turn leading to subsequent drop in food item prices.” Hardly ever an argument that can placate investors. Even if retailers managed to build the cold chains, would it necessarily translate into profits for them? Doesn’t look so from the experiences of the existing Indian bigwigs. Most Indians prefer purchasing food items from Mandis or local vegetable shops early in the morning, where they can get fresh stuff. Experiences from Indian retailers show that the Indian consumer is totally disinclined to purchase food produce from retail outlets since the items are stale. Therefore, to expect the Indian consumer to change his preferences overnight remains a huge challenge for big retailers. -1 for Big Retailers.
It’s also the government’s own duty to build national infrastructure & not the job of a private entity. Then, why does it expect the retailers to invest in cold-chains? Is there a case here for the government caught in dereliction of duty? Well, lesser said the better. -1 for People’s Representatives
Fourthly, the government argues that retailers can get into direct contracts with farmers ensuring higher prices for their unit output as the middlemen get eliminated. Today, most of the margins are distributed among the middlemen, leaving little scope for better profits for the farmers. Pretty much a valid argument except the fact that truth is bitter than fiction. Retailers have been found to push farmers to the limits where farmers become over dependent on the retailers. In the long run as farmers become dependent on a single retailer based on the contracts they entered, retailers command greater bargaining power than the farmer. Thus, while retailers make wind fall profits farmers gain very little in the bargain. -1 for Farmers
Till now a loss-loss for everyone – From Farmers to Retailers to Consumers. Therefore, the opposition, which projected a dooms-day scenario in the parliament, would have gained hands down if it had only ensured that it sensitized the people of the possible pitfalls the government’s over indulgence in Big Retail. As Big Retailers would have failed, the opposition parties especially BJP could have used it as a poll campaign – “We Told You So” or “See How Congress Tried to Cheat the Citizens”. Alas !!!!
At the same time, the advent of Big retail, IFF it is successful, might as well have the following advantages.
Retailers would have to ensure quality of food produced remains high for end consumers. To achieve the same they would provide the Farmers with greater access to better technology, best in class farming practices and enable better productivity from an unit cultivatable land. +1 for the Farmers; +1 to consumers
As Retailers start engaging the farmers directly by entering into contractual farming, middle men get marginalized, in the process leaving better margins for the Farmers which can significantly improve their dilapidated lives. +1 to Farmers. Simultaneously, Consumers would have gained as the cost to middlemen disappeared. +1 to Consumers; Middle Finger to Middle Men.
However, today, no evidence shows that Big retailers provide cheaper products than Kirana shops. Even though the Big Bazaars and Reliance Freshs exist, Kirana shops seem to be flowering and co-existing felicitously with Big Retailers. This co-existence of the Davids and the Goliaths cannot be more appropriate than in Kolkata where a small Paw-Bhaji shop runs just outside the South City Mall – which incidentally houses the CCDs, the KFCs and the Pizza Huts – and makes enormous profits at that. Talk of Indian sensibilities about street food and local tastes? Last heard, the Chief Minister of Bengal withdrew her support from center, arguably to lend voice to these small vendors, who incidentally seem happy in the shadows of big retail. -1 to People’s representatives.; +1 to Kirana; +1 to Consumers
Finally, amidst all the talk of benefits to the farmers, big retailers and small shop owners, where is the Middle Class Consumer? Did the People’s representative forget him or was he purposely neglected? IN all possibility the latter, since, he doesn’t form a credible vote bank beyond the cities and remains largely a mute spectator.
In our country most political parties which gain a huge support from small retailers who fund their political existence, have little reason to celebrate the middle class. For instance, if the BJP didn’t take up the issue of SMEs and small retailers (who incidentally never pay taxes) it would tend to lose a lot –in funding and in popular support. Meanwhile, Congress also, which has always pretended itself to be for the Aam Aadmi (its own activities barely representing what it preaches), has left no stone unturned to project the benefits of Big Retail that accrue to the Farmers – incidentally the easiest to dupe segment of the population. And as the Opposition and Government clamor for popular space, the middle class loses out.
Shouldn’t they be asking the Questions as to why none of the parties deem it important to explain the benefits to the middle class. Well, in a world where the irate Mani Shanker Iyer lives, benefits to the middle class shall remain a pipe-dream.
According to me if any party sincerely wished for the welfare of the society, farmers, middle class, small retailers included, it should have wasted no time in false grandiosities in the parliament. Instead, it could have done a world of good if it had focused on ensuring greater checks and balances in the FDI legislation to ensure no one lost out. Legislations that would have prevented the farmers from losing out in the long run –because of Big retailers’ predatory pricing mechanisms; Consumers – the MIDDLE Class - could have gained because of better cold-chains which would have trickled down into lower prices of end products; SMEs could have gained by actively engaging with retailers and legislations that prevented retailers from importing Chinese goods.
Sadly, in a country where the vote bank “arguably” still lives in villages, the middle class - just 400 million strong - doesn’t count and keeps losing out !!
Meanwhile, our biggest Foreign Direct Investment (from Italy) has already cost the nation a lot! We must wonder why the ruling party has been so hell bent upon supporting FDI.. it’s in their blood B-) !!
