Elementary, dear policymaker

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: If the government restricts the entry of big retailers, both foreign and domestic, to the Indian retail arena, it would be bad economics. Promoting competition in a sector is important for its efficient functioning, sustainable growth through innovation and consumer welfare. It has been evident that encouraging competition by allowing easy entry into and exit from a market is good for growth of that sector in particular and the economy in general.

With their large operations, big retailers benefit from economies of scale. Given healthy competition, each firm tries to make products available at the lowest possible prices. This would induce retailers to buy agricultural products, for example, directly from farmers. For this, they will establish their own chains for such purposes to minimise cost. By thus eliminating middlemen in the supply chain that are responsible for the sector’s well-documented inefficiencies, they help the entire sector turn more efficient and competitive. This process will ensure that products are available at lower prices in comparison with what the consumer is paying at her local small retailer at present. The money saved by the consumer would again go into the economy, either in the form of savings (which would probably be invested) or expenditure (this would increase aggregate demand). This, in turn, would spur economic growth.

As the retail sector matures, new possibilities of investment in cold supply chains for agricultural products will be opened by retail agencies to cater to growing market demand. Such cold supply chains will help bridge the current gap between marketable surplus and marketed surplus in the agricultural product sector. Wastage in transit will fall sharply, and prices will even out across large geographies. Given India’s climate, the advantages of modern cold chain infrastructure can’t be understated. Of course, the assurance of sustained power supply is critical to the success of cold chain networks. This represents a big challenge for the government.