Talk on retail in India never fails to arouse emotions. However, unlike several other emotionally-charged themes in India?s public policy, where opinion is horizontally split between warring factions, retail debates have seen the noise being much louder on one side. Voices favouring the growth of an organised foreign investment-driven retail trade in the country have been feeble in contrast to the vociferous opposition from those who don?t.
It is, therefore, heartening to note that rigorous economic research has given a thumbs-up to the spread of organised retail in the country. In it?s recently released study on the impact of organised retail on major stakeholders, which includes unorganised retailers, farmers, manufacturers, intermediaries, and last but not the least the consumers, the Indian Council for Research on International Economic Relations (Icrier) has unambiguously underpinned the possibility of both organised and unorganised retail not only coexisting, but also expanding in size over time.
Following an earlier path-breaking study by Icrier on the importance of allowing FDI in India?s retail, the current report should put to rest much of the misplaced anxieties over the possible adverse impacts of organised retail. The latter pertain mostly to the effect on unorganised trade. Many feel that growth of organised retailers will drive their smaller counterparts out of business. The more imaginative among such thinkers consider organised retailers as the latest vehicles of imperialist expansion where big business houses with deep financial pockets are out to swallow the small and innocent neighbourhood grocery stores.
But is it indeed so? The opponents of organised retail appear to overlook a simple point. The possibility of big businesses displacing small ones is theoretically admissible in a situation where the size of the retail business remains unchanged over time. But in an economy growing at more than 8% and with disposable incomes of the middle class also rising fast, the size of the retail business has to expand. It is not for no reason that AT Kearney has been branding India ahead of China and Russia as the world?s most attractive retail market for three successive years.
If the size of the trade is increasing, then unorganised retailers can be booted out only if organised retail grows at a rate that is much higher than the growth of overall retail. But this is not enough. The unorganised segment must also stop growing. Only then can it expect to get decimated by its organised counterpart. But will the unorganised retail actually stop growing? Can anything prevent hawkers and informal traders from selling their wares in the nooks and crannies of the country if they anticipate demand for their products? As cities grow larger in size and migration into cities continues unabated, urban infrastructure will respond only with a lag. Ditto for organised retail, which won?t be able to expand till key amenities like transport, electricity and water become adequately available. But such deficiencies have never been impediments for the unorganised retail. The latter can thrive and flourish irrespective of the quality of infrastructure.
The Icrier study drives home this point by indicating that unorganised retail in India is expected to grow at a rate of 10% per year. The study also mentions that this growth will be insufficient for meeting the overall demand for retail and expects organised retail to take-off in a big way for bridging the gap. Whether this will actually happen or not is a different matter. But for those who are convinced that hypermarts and supermarkets are the nemesis of the ?mom and pop? outlets, the findings of the Icrier study should be an eye-opener.
So what next? Will popular opinion now change in favour of organised retail? Even if it does, proponents of the latter should not expect any immediate policy boost. Like many other economic issues, decisions involving retail trade have political ramifications. In this sense, the current juncture is probably not the best of times for precipitate action.
But one does wish that such action could have taken place. Even if one overlooks further simplification of FDI rules in retail and forgets about shopping at Wal-Mart and Carrefour outlets in near future, there are other measures that can follow. These include steps leading to unlocking of the urban land markets, amending state-level APMC Acts and a serious re-think about the relevance of the Essential Commodities Act of 1955. Most of these are in the pipeline. But till the time they actually figure on ground, organised retail will find the going tough despite high demand. That will only accentuate the familiar supply-side constraints. And the result? Aren?t food and prices of other consumables not high enough?
?The author is a visiting research fellow at the Institute of South Asian Studies (ISAS) under the National University of Singapore. These are his personal views