Column : Shoppers stop!

Written by Rishi Raj | Updated: Nov 29 2011, 06:09am hrs
The government has finally opened multi-brand retail to foreign investment and the opposition parties have gone to town with protests. Some like the Trinamool and the DMK within the ruling coalition are also opposed to the move. The fears are the same old onesthat foreign retailers will come to India and wipe out the local kirana stores and lakhs of self-employed people will get unemployed. In the days to come, the opposition to the move would only get shriller. One can expect the usual form of protestsdharnas, bandhs, protest marches, etcnot only from the opposition parties but also from trade associations of local, unorganised retailers.

With the prospects of such developments, three questions come to mind: (1) Should the government backtrack as the move would backfire politically (2) Is the fear of opposition parties and local trade associations genuine And (3) is there hope that amidst such strong protests, multi-brand retail would actually kick off the ground or remain confined to paper

Lets take the first issue. Despite huge protests, the government should not buckle under pressure and rescind its decision. Not because that it would compromise its image, which may get a boost now that it actually means business as far as economic reforms are concerned, more so when its image has taken a severe beating in recent times due to a host of corruption cases. The move to liberalise retail is a smart one and the government has taken all due precautions like ensuring that 50% of investment goes into developing back-end infrastructure that would create jobs in rural areas, 30% sourcing to be done from small-scale industries and opening of such retail chains in cities with population of 1 million and above.

The governments decision is an executive order and not a Bill that requires approval of Parliament, so no political support needs to be drummed up. Second, retail trade requires the permission of the state governments, meaning that retailers need the licence of the state government where they want to open shops. This ensures that whichever state government is opposed to foreigners coming into retail trade can deny them entry. In fact, a domestic retailer like Reliance Retail has been disallowed to open its fruit and vegetable stores Reliance Fresh in UP for quite some time now. So, if the state governments have a choice of either allowing or disallowing a foreign chain like Walmart, why should the Centre go back on its decision The Centres move is merely an enabling provision, which can only go ahead by the will of the state governments.

The second issue pertains to the oft-repeated fears of the opposition parties and domestic trade associations that the entry of foreign retail chains would wipe out the local kirana stores and render scores of people unemployed. The fear extends that such chains would drop prices and once they have wiped out local competition would raise prices again, thus cheating the consumers.

Nothing can be more wrong than such apprehensions. Though misplaced, one could have still understood them in 2006 when they were first articulated but not any more. The India of 2011 has moved much beyond that of 2006. In the past five years, several domestic organised retail chains mushroomed and sunk. Even when they existed, none of the local kirana stores got extinct, no jobs were lost, and no major price wars were fought. In fact, if anything has happened, the local kirana stores have become smarter and swankier. The proliferation of malls has created enough space for all kinds of retail chains to co-exist and carve a niche for themselves. Tomorrow, even if a Walmart wants to open stores in Delhi, it is unlikely that it will get real estate in the central parts of the city or in any neighbourhood market. At best, it can get a place on the outskirts of the city. This means if consumers want to visit foreign retail chains they would need to travel at least 10-12 km. Obviously, no one would travel the distance to buy some bread, fruit and vegetables. This goes on to prove that theres enough space for different kind of formats and retailers to co-exist.

Now lets come to the third issue. Given that the ball is now in the court of the state governments, does the opening of retail sector move beyond paper Lets be clear here on one thing: foreign retail chains would be slow to enter India. This is because of two reasons. One, they are currently financially troubled in their home markets so do not have the kind of funds to venture out. Two, it takes time to forge alliances and draw up plans. Further, it is quite apparent that bulk of the states would initially not allow them to come. However, small beginning is sure to be made by some of them. Already, names of Punjab, Maharashtra, Orissa are doing the rounds to be the first to allow foreign retailers. Once foreign retail chains set up shop in such states and demonstrate that no such thing as eating up of local kirana stores takes place, such fears would slowly evaporate. Second, consumer pressure on the government would start building up. For instance, if Punjab opens up retail trade and neighbouring states do not, the residents of the latter would realise the folly of the governments of their respective states. How they are being denied the facilities their counterparts are enjoying in Punjab Such developments would put pressure on the reticent state governments to reform.

To conclude, while it is true that opening up retail to foreign investment would not see any overnight rush of money from across the borders, but slowly and steadily it would show results. It is therefore imperative for the Centre to not buckle under pressure and overturn its decision. It should stay firm and let the states take the challenge. After all, the state governments cannot stop an idea whose time has come!