The Hindu Business Line : Why retail sector needs FDI

SOME OF the parties supporting the UPA Government are opposed to foreign direct investment (FDI) in retail trade. One school of thought is that they are doing this as one never knows when they will have to take on the Congress in Assembly elections, and would like to have the use of the Aam Admi, or the common man card just as the Congress used it to telling effect in the 2004 elections.

While political opposition to disinvestment, opening up the economy and even the FDI are understandable, one wonders if this has not come to a point of opposing all measures that would diminish the size of the Aam Admi constituency by tackling the problem of poverty. The opposition to FDI in the retail trade appears to be of this genre.

The deficiencies of the agricultural marketing system in India are too well-known to be reiterated here. Post-harvest, there is no effective agency to take care of storing, processing, grading, trading and exporting farm products. This whole chain is left to the mercies of intermediaries who do little value addition.

The introduction of the Agricultural Produce Marketing Committees brought but little relief. In fact, this unwittingly added one more element to the long chain of intermediaries — the local political neta. With links to the ruling set up at the State and the Centre,these netas manage to stymie any effort to clip their wings or reform the marketing systems. On the threshold of the era of World Trade Organisation and biotechnology, far more basic and structural reforms are required. The new system should provide an interface between the farm producer and the final consumer. It should be able to collect farm produce from across the country and after processing and storage make it available to the consumer who should be assured of a reasonable price and quality. It is necessary to minimise the post-harvest wastage and make the food items in the retail shops conform to health standards.

There are now no standards or facilities for farmers to even make a preliminary assessment of the quality of their produce. The Indian farmer is in no position to compete with his counterpart from other countries for space on the shelves of supermarkets the world over. In the last decade or so, a small number of super-shops have made their appearance. Some of them do undertake some sort of processing and storage. But there are no supermarket networks with nationwide coverage that collect farm products from all over the country and make them available after processing.

A nationwide retail network or, even better, a number of competing networks, will bring about an economic revolution and can deliver a body blow to the problem of poverty and unemployment. This has been proved by experience across the world. The creation of a national or even a regional supermarket network means large capital, sophisticated technology and management skills of a high calibre. In several countries, this whole chain is well established and working well. It would be pointless for India to reinvent the wheel. So the key is FDI, accompanied by technological and management know-how. The opponents of supermarkets sing the glory of the corner-shops that give a sense of personal touch and, of course, credit. Nowhere in the world has the corner shop disappeared.

In fact, these shops score over the supermarkets by offering the consumer fresher products, a larger variety of foods and greater personal attention. But the supermarket has its own advantages, especially of scale. Also, it allows consumers to shop for everything, under one roof. So the supermarket and the corner-shop need to coexist for the greater good of the consumer.

Another common argument against opening up the retail sector to foreign investment is of job losses. Per se, this may be true. But if one also takes into account the jobs generated in a variety of connected and support activities — processing, construction, hardware, furnishing, packaging, data processing and management — supermarkets have a massive employment potential.

In Europe, 5-6 per cent of the labour force is engaged, one way or another, in the retail trade.

The Prime Minister, Dr Manmohan Singh, must put his foot down and push for FDI in retail.

(The author is Founder, Shetkari Sanghatana and Member of Rajya Sabha. He can be contacted at sharad.mah@nic.in.)

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