Saturday, December 17, 2011

COVER STORY Traders' concern T.K. RAJALAKSHMI Indian traders reject FDI in multi-brand retail and emphasise the need for a policy to regulate the labour-intensive sector.
Volume 28 - Issue 26 :: Dec. 17-30, 2011
from the publishers of THE HINDU


Traders' concern


Indian traders reject FDI in multi-brand retail and emphasise the need for a policy to regulate the labour-intensive sector.


At Khari Baoli in Delhi during an all-India bandh called by traders on December 1 to protest against FDI in retail.

TRADERS across the country responded angrily to the Union Cabinet's decision to allow 51 per cent foreign direct investment (FDI) in multi-brand retail trade, disproving the arguments of the United Progressive Alliance (UPA) government and the assessment of corporate India, which had tried hard to make it appear that traders and farmers were by and large supportive of the move. The Cabinet decision, trader associations said, was akin to bringing back the East India Company under a different name. The entire opposition backed the one-day strike observed by traders on December 1. It was perhaps this groundswell of support, coupled with a united opposition on the issue, that made the government put the decision on hold.

Traders' organisations have not opposed the 100 per cent FDI in cold chain infrastructure and wholesale (cash and carry), permitted in 1997, or the 51 per cent FDI in single-brand retail, permitted in 2006. But organisations such as the Confederation of All India Traders (CAIT), an apex body of trade associations and federations, have objected to FDI in multi-brand retail. The CAIT rejected the government's arguments that huge investments in the retail sector would result in gainful employment in agro-processing, sorting, marketing and front-end retail business and that multi-brand retail would have a salutary effect on food inflation by improving the supply chain and logistics. Retail trade, which is the second largest employer after agriculture, comprises food and non-food sectors. The food sector accounts for 70 per cent of the total retail trade. Ninety-five per cent of the retail trade is in the much-neglected unorganised sector. Strangely, there is no policy on modernising and restructuring retail trade. In fact, traders argue that although FDI in wholesale trade was permitted in 1997, no significant investment has happened at the back-end of the supply chain. "The multinational companies never wanted to develop infrastructure for agricultural produce, which is not considered a lucrative business," a statement issued by the CAIT said.

Praveen Khandelwal, general secretary of the CAIT, told Frontline that though FDI may prove beneficial in the short run, small farmers and producers would be forced to sell their produce at a lower rate in the long run, with buyers rejecting it on the pretext of inferior quality or small quantity and farmers finding it difficult to negotiate with the giants. Another likely situation was that multinational retailers would start selling food products sourced from abroad at a lower price and which could be of better quality. Consumers, finding their choices limited, would be forced to buy the outsourced products.

In July 2010, the Department of Industrial Policy and Promotion issued a discussion paper on the subject of FDI in retail and invited views on it. Khandelwal said that more than 62 per cent of the responses received by the department were not in favour of FDI. Yet, the Committee of Secretaries, headed by the Cabinet Secretary, approved 51 per cent FDI in multi-brand retail.

Earlier, the Parliamentary Standing Committee on Commerce, which had gone into the issue of foreign and domestic investment in retail, had declined to give its go-ahead citing weaknesses in the present system and the peculiar circumstances prevalent in the country. Khandelwal said a number of reports had established that FDI in trade had resulted in massive unemployment; exploitation of farmers, workers and growers; and overcharging of consumers.

Traders' associations feared that there was an attempt to make agricultural produce market committees (APMC) redundant on the pretext that they were prejudiced against farmers. This would give multinational retailers free access to small and unorganised farmers, resulting in their exploitation. The committees were constituted under the APMC Act to regulate the market through an efficient system of buying and selling of commodities. The government argued that in the present dispensation there was a complex chain of procurement involving several middlemen. FDI in retail would create an enabling environment, and "progressive" States would then take steps to reform the APMC Act to ensure direct procurement, at least of horticultural produce.

Kirti Rana, president of the Maharashtra unit of the CAIT and director of APMC (Spice), Mumbai, told Frontline that every day supplies from 3,500-odd trucks carrying fruits, vegetables, potatoes and spices were lifted from the mandis (wholesale markets) and delivered to retailers. "The government calls them middlemen. What are these multinational retail companies then? They are also middlemen." He said the government should invite foreign retail majors to places that lacked roads, electricity and transport.

According to figures provided by the CAIT, more than 10 crore small shopkeepers and more than 40 crore people depend on Indian retail. This figure excludes kiosks, pushcarts and footpath vendors. India has the highest density of retail outlets in the world: an estimated 15 retail outlets for every 1,000 persons. The overall size of the sector is estimated at Rs.15 crore although only 4 per cent of it is in the organised sector.

Representatives of traders' associations said they were not against economic reforms as such but pointed out that the government had done little to upgrade and modernise the existing retail trade. "Wherever we got space, we opened a shop. There was no policy as such. Many people and families are dependent on us, right from the pushcart person and the porter to the transporter," said Khandelwal.

The government's argument that foreign retail majors had decades of experience and the technology and management practices that would ensure supply-chain efficiency was countered by the traders' lobby. "These are presumptions. The government has not come out with any authoritative research or statistics to back its claims," Khandelwal said.

The CAIT feared that multinationals would dump poor-quality goods by procuring them from developing countries. The spokesperson of the confederation said that the Indian traders' associations had studied the MNC business model and come to the conclusion that it was predatory in nature. The Indian retailer, it was found, would not have a level playing field as a few global players would dominate the field.

Without much government support, the Indian retail sector has been registering an annual growth rate of 15 per cent, that too with indigenous capital. Khandelwal said had there been a retail policy, a more cohesive growth benefiting the consumers would have been possible. "We are not afraid of competition. But we would like a level playing field. Big capital would completely swallow us," he said, speaking on behalf of traders.

"Why does the government not reform the retail sector? We would welcome that," Khandelwal said.


IN A RELIANCE Fresh outlet in Bhubaneswar. Reliance wants to be the leader in Indian retail.

It was also argued that as long as businesses were in a competitive mode, consumers could be sure of benefits. But once monopoly entered the sector the consumer would be forced to buy at prices fixed by the retail giants. Surprisingly, the government has not done a study to find out how the entry of organised retail in single-brand has benefited farmers, small retail owners or consumers.

Traders question the novelty of products that the MNCs may usher in. They argued that there was no dearth of materials in the Indian market and that this was purely because of the supply chains established by the traders themselves.

The traders also pointed out that the present ruling dispensation, when it was in the opposition, had opposed FDI in multi-brand retail when the National Democratic Alliance government proposed it. "The government is claiming that there are inefficiencies in the food supply chain and that lack of storage facilities has resulted in big losses to farmers, up to Rs.1 trillion a year. Let the government admit first that it made a mess of things," Khandelwal said.

The example of China given by the government was erroneous, a spokesperson of the traders' lobby argued. China is a "manufacturing" country and needs big retailers. Also, there are regulations in place in that country to punish unethical practices.

The traders have demanded an Act to regulate small and medium retailers on the lines of the Micro, Small and Medium Enterprises Act, 2006, and a law to check predatory pricing and anti-competitive actions.

Predatory pricing by global retailers, a CAIT release said, had eased out the "mom and pop" shops in the United States. Mom and pop shops are similar to the neighbourhood kirana shops in India. Trader associations are hopeful that the rollback will be a permanent one and that the government will seriously come up with a policy to address the needs of the domestic retail sector.

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