The Hindu Business Line : The multiplex multiplier effect

The so-called luxury multiplexes and malls are highly labour-intensive and generate jobs, and incomes, at various levels with a trickle-down effect. They open up opportunities for a variety of sectors, without affecting the street-corner shops. These `temples' of modern-day India are win-win for the country, says ALOK RAY.

THE NEW places of pilgrimage?

A proud Jawaharlal Nehru once described the steel mills as the "new temples" of modern India. To the present generation of young Indians, the new temples are the multiplexes and malls that are mushrooming all over the country, including smaller cities and towns. Should we feel proud or guilty for these new places of pilgrimage?

Who is benefiting from these developments? Are the gains going only to a small section of affluent Indians — the so-called "creamy layer" of the society?

Consider the consumer gains first. The direct gains to consumers from shopping malls and multiplexes are obvious. These accrue in the form of wider choice, standardised quality, convenience and more comfortable shopping and viewing environment. In some cases, one is also getting lower prices, which result from economies of scale, sourcing from the cheapest suppliers and cutting out middlemen from the supply chain. The consumers clearly benefit.

Who are these consumers?

They are certainly not the people below or just above poverty line. So, clearly the really poor people are not gaining anything as consumers. But, then, the question is: Would these poor people be better off if shopping malls and multiplexes are not allowed to proliferate?

The point is these malls and multiplexes are not being built by public money. Hence, no diversion of government funds takes place from programmes meant for the poor. The problems of the really poor in India are that foodgrains do not reach the ration shops in distant villages. Doctors and medicines are not available in rural health centres, the quality of education in village primary schools is very poor and so on.

These are clear cases of government failures. We need a reoriented government machinery to improve the delivery and the quality of public services provided to the less privileged. It is not the responsibility of the private sector. Private sector money would not go to build health centres or primary schools in villages, even if they are not permitted to build shopping malls. In that sense, it is immaterial for the poor whether more multiplexes and malls come up or not.

Gains for ordinary people

However, there are many other ways by which very ordinary people gain from multiplexes and malls — mainly as workers or suppliers of goods and services.

Ask any worker in small shops. Given the choice, he would rather work in big chains, or malls such as Pantaloons and Lifestyle. For the simple reason that that would offer better wages and better working conditions. Development means people graduating from lower paid jobs to higher-value jobs over time. More multiplexes and malls will expand such job opportunities to a larger number of people.

Despite their glitzy appearances, multiplexes and malls are highly labour-intensive. They need shop floor attendants, security personnel, parking space attendants, maintenance staff (such as electricians, plumbers, floor cleaners). The foodstalls in the multiplexes and malls create many new jobs, mostly low skill. These require just a school degree or in some cases even less. Many of these workers are coming from very ordinary families. Then there are the employment and income gains from the additional construction activity for building new multiplexes and malls. Construction and real-estate development is a highly labour-intensive activity. So, a lot of ordinary low-skill workers will gain directly and indirectly.

Loss for small grocery shops?

But how about the potential job loss for local small shops, grocery stores and food and vegetable vendors? India is not an integrated homogeneous market — it is a hierarchy of markets catering to people at many different income levels and tastes. For example, here both Sony and Santosh, Lays Chips and home-made `wafers' coexist, catering to different market segments at different prices. Therefore, entry of branded sophisticated products affects the unbranded mass market only marginally. Moreover, in big malls where major retail chains set up shop, typically there also are many small outlets and boutiques. A large number of buyers would also be attracted to such small stores. As for the street-corner shops, they have some advantages over big stores located miles away. In India, transportation and parking are big problems. It is more convenient and cost-effective for people to purchase many of their daily requirements from the local stores. Hence, the street-corner shops can very well survive. Most people would still prefer to buy fresh fruits, vegetables, fish and meat from the local vendors, because those would be fresher.

Boon for farmers

To the extent the big retailers establish a direct linkage with the farmers by cutting out many layers of middlemen, develop the processing facilities and export the products to meet their global requirements, farmers would get better prices and bigger markets while the consumers would benefit in terms of lower prices, better quality and greater variety. The resultant rural prosperity may open up markets for other industrial goods and may help a more balanced regional development and more job creation in other sectors.

Consumerism ahoy!

Some complain that the growth of multiplexes and malls are encouraging unhealthy "consumerism". Consumerism always existed, only it was the luxury of the affluent. Now, a larger number of people are able to access a much greater variety of quality consumer goods at affordable prices. What is wrong with that?

Unlike in the past, limited domestic savings is not a problem for India today. Foreign savings are pouring in. What is needed now is more consumption expenditure, which in turn would create more demand, more production, more jobs, more income and more investment in additional capacity creation.

To the extent multiplexes and malls are encouraging additional consumption, it is helping the growth of jobs and income for a large number of ordinary people.

Diverse economy

Basically, the co-existence of shining multiplexes and malls and local shops and dirty cinema halls is a reflection (or effect) of the highly unequal income distribution. But they are not the cause of bad income distribution. Hence, banning multiplexes and malls would not spread the fruits of development any better.

In a fast growing economy, big retailers and small shops can both prosper. India is the second fastest growing big economy in the world. Today, despite the fact that more people are buying cars, the market for two-wheelers is not shrinking. Nor the market for bicycles.

With generation of more incomes and their multiplier effects, more people are switching from walking to bicycles, bicycles to scooters, and scooters to cars. This is development for all. The same holds good for multiplexes and malls.

Even when there is some diversion of business from local shops to shopping malls, it would be substitution of better jobs for inferior ones. Despite some short-run adjustment costs (as in the case of automobiles replacing horse-driven cars) multiplexes and malls would be the facilitators of development for all in the longer run. So, one need not feel bad building and visiting the new "temples".

(The author is a former Professor of Economics, IIM Calcutta. His e-mail: alokray15@yahoo.com)