Get small units into organised retail

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: All major reports point out the benefits that allowing FDI in retail sector would bring to India. The McKinsey reports in 2001 & 2003 concluded it would improve productivity (2.5%), increase annual output by 12% and also create eight million jobs. Why shouldn’t it be allowed in the national and consumer interest? The objection to it from the SSI segment and NGOs is also not understandable.

—PR Consulting, Mumbai, through e-mail

At the heart of the debate are three issues. These are fear of displacement of existing employment, adverse impact of chain stores on the community, a topic of hot debate even in the western world, characterised by the fight between ‘heart and wallet’ and, finally, the returns for India in lieu of opening one of the world’s largest retail market to MNCs.

The very size of the retail sector (estimated to be Rs 5 trillion and close to 10% of GDP) and the huge number of people it employs (6.7% of total employment) makes it a worthy candidate for debate. The National Economic Census (1998) notes that retailing is one of three economic activities that dominate our hinterland. It says close to 8.3 million own-account enterprises (one-person organisations) have been engaged in retail trade (non-agricultural). The number of establishments (employing 1-10 persons) in the same activity was 2.3 m. Therefore, in all, around 10.6 m units in retail trade, employing close to 18.5 m people.

Only 2% of the retail sector is in the organised segment, primarily concentrated in metros and larger cities. It is the millions of unorganised, tiny retail outlets that form the backbone of the sector. Of the latter, the largest segment is the one-man units: 8.3 m spread over the remotest of areas and inaccessible villages, with 94% of these having no access to even electricity!

It is extremely unlikely that large general-merchandise discount stores would have much impact, at least in the foreseeable future, on units in rural areas. The impact of large stores in the short and medium term would be greater in metros and larger cities, because a much greater need for these is felt by consumers. The infrastructure of cities is bursting at the seams and traditional markets have become chaotic. Further, traditional Indian retail outlets suffer from limitations of price, quality and variety of merchandise. Today, Indian food markets (constituting 40% of retail) are also considered one the most adulterated in the world.

The objections from SSIs echo that of various civil society institutions in India and abroad, about the ill-effects of large stores on community. Armed with research in the US and Europe, these groups warn that even if chain stores could save us some dollars here and there, it comes at a great cost. The large stores hugely impact the local small businesses and cause significant loss of secondary economic activity: transport firms, accounting, printing, etc.

Also, these stores are not embedded in the local community and scarcely care or contribute, it is charged, in social and community development.

They conclude that loss of small business activity in cities do break the foundation of social connections and the culture of cities changes dramatically.

In my view, the debate lies not so much on ‘allowing FDI in retail or not,’ but on large general-merchandise discount stores, domestic or foreign, versus the millions of small kirana shops. Large Indian corporate houses are either already into organised retail or are seriously planning to. Their impact, if it is bad, would be no less than that of MNCs.

If a meaningful policy intervention needs to be devised at all, it has to be ‘large versus small’ and not ‘Foreign versus Indian.’

The fact is that big Indian cities are in dire need of large merchandise stores. Fear of loss of jobs due to large stores is, in the case of India, grossly exaggerated. The largest retail employment is at locations where only the small and traditional units can reach and survive; they service highly niche markets.

The question is how to ensure more participation of local small businesses in organised large-format retail. This will answer what India will get by opening its billion-people market.

We are a group of Quality consultants and have developed an IT-based quality package for SSI units. We want to know how many SSI clusters there are in India. Kindly guide us on where we can get the list.

—R Deepak, from Bangalore

The number of SSI clusters would depend on the criteria to define a cluster. However, according to the third all-India SSI Census, there are 1,223 clusters of registered SSI units (based on 100 or more units producing the same product). The number of clusters in the unregistered segment is estimated to be 819 (based on 500 or more units producing the same product).