R Srinivasan

Manmohan plays for high stakes

Updated on: Sep 26, 2012
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The Prime Minister has put his personal image on the block to back two horses, retail and power — just as he went all-out on the nuclear deal.

Prime Minister Manmohan Singh is good at many things — economics, teaching, administration — but there is one thing one is fairly certain he would not be very good at — poker.

He certainly has the face for it. Even when he is deeply upset or angry, for instance, he betrays no signs of it in his expression. But perhaps what is lacking is that true gambler’s instinct, the kind of sixth sense which prompts them to (once in a while at least) back that risky but winning long shot.

Take the very few instances when he has taken a decisive gamble, and played for the biggest stakes — the continuation of his government, and he himself, in power. The first time was over the Indo-US nuclear deal, over which he staked his government, and had the Left walking out as a result.

The second time was over the issue of allowing foreign direct investment in multi-brand retail. Again, he was prepared to put the future of the UPA alliance, which he heads, at stake. Once again, a key ally, this time around, the Trinamool Congress, walked out of the alliance.

‘Gamble’ paid off

Now one might argue that these are testimony to a successful gambler, not a poor one. After all, both times, Singh’s ‘gamble’ paid off. He managed to get Parliament to ratify the Indo-US nuclear treaty. And his government didn’t fall. He has now managed to throw open India’s booming retail sector, which contributes, depending on the estimates, anything from 14 per cent to 20 per cent of GDP, to foreign big box retail. And this time around too, he continues to remain firmly in the saddle, with other parties rushing in to offer support, and, more importantly, Congress supremo Sonia Gandhi resoundingly endorsing his actions.

The essential skill of a good card player, and one which separates him from the rest of us who sit around and lose a few bucks every Diwali, is the ability to take risk. Not blind risk, which any fool can do, but calculated risk, based on an assessment of the strength of one’s hand, the probability of one’s opponents trumping one’s top card, and an exquisite sense of timing, of when exactly to make that big, all or nothing play.

It is on this count that one tends to question Manmohan Singh’s poker skills. Because, although he apparently acted like a seasoned poker pro playing for mega stakes — and apparently won that gamble too — one has to look at why he did what he did, not the immediate, political outcomes.

The thing is, he did not back these two particular horses because he wanted to reinforce his position as a leader, or get rid of troublesome allies. He staked his personal reputation, his leadership and the future of his government in backing these two particular items on the agenda because he genuinely, truly believed that they were the answers to some of India’s more pressing problems.

He genuinely believed that nuclear power offered the best solution to quickly bridge India’s power deficit — and that stronger and deeper strategic ties with the US were also necessary for India’s growing global ambitions. He also genuinely believes that allowing modern global retailers to operate in India, especially with the ‘back-end investment’ riders which have been added, will transform rural connectivity and infrastructure, fight inflation and, most importantly, to use his own words, “create millions of good quality jobs.”

Poor track record

The trouble is, the track record in these two sectors fails to justify such confidence. It’s not just the fact that not one kilowatt of electricity has been generated as a direct consequence of the deal. Even the ‘strategic closeness’ India achieved with the US may well prove to be temporary, and indeed swing the other way, depending on who wins the next US presidential election. And the outcome which most Indians were looking for, namely greater leverage with Pakistan on the issue of cross-border terrorism, has proved more illusory than real.

That leaves organised retail. The doors to foreign-owned organised retail may have just been thrown open, but organised, large format retail — albeit Indian owned — has been around for well over a decade. Other than the ownership dimension, these retail chains are no different from their overseas counterparts.

Their business models are similar, their operations are similar, even the appearance and layout of their stores are similar. And so far, Indian organised retail has barely made a dent in India’s retail market.

It has had no discernible impact on inflation; it has made some marginal difference to infrastructure, and has not significantly altered the employment situation — at least of a measurably higher order than what its small counterparts in the so called ‘unorganised’ sector are already doing. While the huge size of the Indian retail market — estimated by Business Monitor International at $411 billion in 2011 and by ICICI-Technopak at $575 billion for the same year — is often touted as evidence of how organised retail can contribute to the economy, the fact remains that organised retail itself accounts for barely a tenth of this. And even of this, over 40 per cent is accounted for by non-food retail.

Things like electronics, fashion and lifestyle products retail does not need, and therefore will not invest in back-end infrastructure, farm connectivity and food storage.

That will be done by food retail, which has already reached reasonable size in metropolitan India, without any of the backend infrastructure showing. Not that it has not invested in, or helped create it — it has. But it’s not of a scale or size which is significantly altering the food infrastructure landscape in the country. That, unfortunately (and sadly) is still largely in the hand of state-run behemoths of inefficiency like the Food Corporation of India.

Even on the employment front, one wonders whether the initial, optimistic estimates will hold up. The calculations of 1.5 million to 2 million jobs being created over five years are actually based, not on the projected growth rates of retail, but real estate.

The argument is that one retail job will be created for every 375 square feet of retail space, and if developers are projected to add x million square feet of retail space, it will create that many jobs.

The ground reality

It is one way of estimating and as useful a method as any, one supposes, when one is working out projections and plans. But at the ground level, the reality is slightly different. Currently, 34 per cent of built up and ready to use retail space in Ahmedabad is vacant.

In NCR, the figure is 28.1 per cent, in Mumbai over 10 per cent and over 25 per cent in Pune and 12.5 per cent in Bengaluru, says real estate consultancy Cushman & Weikfield.

As a result, the Mumbai market, for instance, is expected to add nil large format retail space in 2012. There will be nil additions in Kolkata and Ahmedabad as well, while the NCR region, India’s largest consumer market, will add a paltry 0.12 million square feet. And almost one-third of all real estate retail space developments already announced for the year have been delayed.

To then optimistically project the creation of millions of jobs, based on a clearly highly optimistic projection of creation of retail space, is stretching it.

This is not to say that allowing foreign players into Indian retail is not a good thing. It is. It will definitely benefit consumers, almost certainly help farmers realise better prices, and yes, it will indeed create jobs. But to expect grocery store operators to solve India’s infrastructure problems, sort out the messy, inefficient and corrupt food supply chain, and help tackle the unemployment issue, all in one fell swoop, is, well, an unrealistic gamble.

Published on March 12, 2018

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