India not prepared for big brand retail

Walmart is going to enter India!

India has taken the bold decision to focus its reforms on encouraging efficient ways of transacting business.

Accordingly, reduction of wastage and permitting modernisation of one of the most labour-intensive activities, namely, the supply chain and retailing, is going to become a reality soon.

Walmart will typically employ 10 per cent or less of the manpower required to do a rupee of turnover, compared with the present, ‘inefficient’ supply and retailing chain.

Yet, we, the reform-focused India, have consciously decided to embrace this ‘efficient’ way of doing business

An efficient “for-profit retailer”, with no “nationalistic sentiments’’ will naturally try to source its products from the cheapest source, even if it is outside India, up to the limit permitted by the Government — that is, 70 per cent. In fact, we should be surprised if it does not do so.

FOR WALMART TO WORK

The increase in employment that is supposed to happen in India, post-Walmart, can occur only if consumption goes up steeply, thanks to the availability of cheaper goods, and if that increased requirement of cheap goods gets sourced within India.

India has entered into a zero-import duty trade agreement with all least developed countries (LDCs) in SAARC.

These countries are in our proximity; getting goods shipped from them to different parts of India by ocean will be much cheaper than moving goods from one part of India to the other, even if diesel continues to be subsidised.

These LDCs operate on a fraction of our labour costs, power costs and international raw material/components cost. Therefore, we need to take a hard look at some of our policies that add unnecessary costs to our manufacturing, and weed them out. These include:

Reservation acts , like Handloom Reservation Acts, that support non-economical value-adding employment;

Cross-subsidies that help keep power costs lower for domestic and agriculture customers, but make industry pay punitive rates;

Aggressively look at reducing our internal logistics cost by encouraging rapid expansion of rail and coastal cargo network.

Keep raw material prices below international prices, especially while giving ore , limestone and coal practically at mining cost to industries manufacturing metals and cement.

The Handloom Reservation Act mandates that all mass-consumed goods produced in India need to be made on handlooms. Handloom-made, mass-consumed goods will certainly not be able to compete with alternatives available to Walmart.

Power-costs, accentuated by cross-subsidy burdens and high-cost diesel power cannot compete with alternatives available to Walmart.

Steel, aluminium and plastic products made out of raw materials which are through policy, made available to Indian manufacturers at 15-30 per cent higher costs than international prices too, will not help Indian manufacturers compete with alternatives available to Walmart.

LDC products which enjoy zero Customs duty, will be produced with greater vigour. We will see the growth of assembling units, putting together Chinese parts to make products for India to be sold in Walmarts.

HOUSE-KEEPING TASKS

Employment generation, post-Walmart, will certainly happen, but for that we need to do some house-keeping in quick time.

Abolish all non-economic value-adding job reservations. For example, Handloom Reservation Act, just as we have decided to do away with 90 per cent of the non-economic value-adding jobs in logistics and retail through Walmarts;

Abolish cross-subsidy charges that punish industry, and make State governments bear the total burden of subsidies on power;

Work on time-bound national rail freight corridor on the lines of the national highway network;

Encourage coastal cargo by suspending the Cabotage rule until coastal cargo picks up to 20-30 per cent

Through policy , force those getting near-free ore, lime stone and coal to pass on the benefits to the nation. This is akin to what the PPA agreement with Discoms is attempting to do with power produced by users of coal mined from captive blocks.

We can hope for an efficient retail network, with a large number of its customers spending money earned mainly through NREGA and to-be-introduced NUEGA (National urban employment guarantee scheme).

Likewise, we can pray or hope that we strike gold in services and technology-based industry like biotech, aerospace, tourism and repeat the IT success story — which will give our people purchasing power, despite the severe handicaps faced by the traditional manufacturing industries. But such wishful thinking can wait.

(The author is Managing Director, Loyal Textile Mills.)

COMMENT NOW