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9, December 2006 Pragati Maidan, New Delhi.
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Association a edit column in one of the leading financial dailies pointed out- retailing is one of the few sectors where foreign direct investment (FDI) is not fully allowed at present, but the Indian government is seriously considering allowing it. Quite expectedly, concerns have been raised in several quarters about the desirability of such a move, as this might adversely affect employment in the country. But, there are also several other issues that warrant a closer scrutiny in the ongoing debate. The most forceful argument against retail FDI – one in which small Indian retailers will not survive against the onslaught of global retailers. The main problem, therefore, seems to be the choice between large and small players, of the big displacing the small, and not so much about domestic investment versus FDI. On the flip side, it is contended that small retailing, being mostly family-owned businesses, has become concentrated in a particular population group and does not offer much employment opportunities to those who are outside this group. Organised retailing would open up a new employment avenue for several others in both front-end retail stores and the back-end supply chain side. If one takes into account the jobs generated in a variety of upstream activities —processing, construction, hardware, furnishing, packaging, data processing and management—organised retailing has massive employment potential.Corner shops score over the supermarkets by giving a personal touch, and of course, credit. In fact, the coming up of large retailers has raised the bar on the service and quality provided by small retailers and has made them diversify and provide additional goods and services – a boon for consumers. Organised retailing has its own advantages, especially of scale and it offers huge potential for enhancing consumer welfare.Another beneficiary of organised retailing would be the farmer. A recent study by CUTS shows that there is a huge gap between the prices consumers pay and the prices farmers actually receive because of a chain of intermediaries. Organised retailing would provide an alternative avenue for farmers and bring an end to the scourge of abusive practices of the middlemen. Further, the lack of serious scale investments in cold-chains and handling facilities leads to a huge national waste, and we cannot expect intermediaries and marginal food sellers to build this infrastructure. The creation of a national or even a regional supermarket network means large capital, sophisticated technology and management skills of a high calibre. Organised retailing will, thus, impact both farmers’ incomes and consumers’ value. The example of China has been cited to argue that the entry of large retail firms like Wal-Mart will induce them to procure from India and sell in other countries. However, Wal-Mart would have procured from China anyway, because of cost advantages and thus the linkage is not tenuous. In fact, China became a major source of procurement for Wal-Mart much before it opened its own retail outlets there. This applies to India as well. An associated concern is that FDI in retailing will facilitate the entry of retail giants who could monopolise the market. Even in many developed countries, big retail chains are getting more powerful, and as they flex their muscles, manufacturers are realising the importance of dealing with them in a different manner, compared to the regular mom-and-pop stores or neighbourhood kirana outlets. There have been several cases of anti-competitive conduct in other countries that have found retailers using their market (buyer) power to the detriment of suppliers and competitors, and finally, the consumers. The new competition law, the Competition Act 2002, which is required to check any such abuse, has been in a limbo for quite some time, and it is high time to get it moving. The government needs to carefully examine all these and other issues before taking a decision. The high point on the agenda should be to make the new competition law operational
Date: 08-Jan-2007
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