FDI in Retail – A Pernicious Policy Formulation

The UPA government’s FDI policy, which allows entry of multinational retail giants like Wal-Mart in retail sector in India, gravely prejudices national economic and social interests. The commerce minister’s admission that the new policy may enable global retail giants to get into multi-brand retail by investing in Indian companies shows how shamelessly the government is seeking to smuggle them into the crumbling indigenous retail corporates to save them. This policy subterfuge by the Congress, the major partner of the ruling dispensation, that is bereft of the support of even its allies for the proposal, betraying the assurance of its own Finance Minister to finalise the policy after discussion at Parliament, violates wellaccepted democratic conventions and political norms. It is also in clear breach of the Common Minimum Programme which binds the UPA coalition. More, since retail trade in India is not just a business but a community undertaking in most parts of India, it carries a high risk of social unrest.

The unorganized retail trade in India represents the traditional, community-centric, low-cost and employment-intense retailing that includes but is not limited to, kirana shops, owner-run general stores, paan/beedi shops, convenience stores, hand cart and pavement vending. In this model a whole family works in one shop and a whole community is engaged in the trade in a defined area. It is collectively almost an unincorporated enterprise formed by relation-based communities now increasingly regarded as social capital. It is this model which has enabled the Patel community from Gujarat to leverage on their social capital to outmanoeuvre organized corporate motels in US and Canada and turn corporate motels into community Potels! Most advocates of corporate retail in India and of foreign retail firms in India seem to ignore the critical contribution of the present model of retail trade to the Indian economy and society.

First, as its very structure and its reach from the main metros to the remote hamlets testify, this multi-layer retailing is the most decentralized economic activity in India after agriculture. Second, it constitutes almost 98% of total trade with an estimated 12 million outlets; in contrast, the organized trade accounts for just 2%. Third, it is the largest employment provider after agriculture again, employing an estimated 40 millions. In contrast, the largest retail giants in the world, the Wal-Mart employs just 5 lakh persons; this demonstrates how insignificant that is in comparison. Fourth, being self-employed, most of them are engaged in the trade along with their families, the work and livelihood of some 120 millions more rests on this sector.

Fifth, the retail trade in India is run by community-centric social capital, not unrelated individual traders. Sixth, consequently, it is an open air community B-School for retailing that continuously generates, by sharing knowledge and experience through relations, huge community-based entrepreneurship. Seventh, it contributes to over 14% of India’s GDP, while the share of all companies in the BSE 500 index is some 4%! Eighth, this so-called unorganized retail segment has been growing at an average of over 8% per year for the last 8 years [1999-00 to 2006-07] which is second only to the construction trade that grew at some 10%.

More. The retailing experience of the non-Western world has not been factored in by the policy makers. Japan has intensely protected its retailing which is also family and community-led and social capital-driven. In contrast countries like China, Malaysia and Thailand, who opened their retail sector to FDI in the recent past, have retracted and enacted new laws to check the prolific growth of foreign malls and hypermarkets to control their ill-effect on the economy and employment.

In sum, the new policy is an attempt to replace through corporate-led retail the social capital-led retail in India while, in the motel business the US, the reverse has taken place with the Patel social capital replacing the corporates! The present Indian retail model is an efficient delivery mechanism for the rural India where the corporate mechanism too cannot reach except through the traditional model. But, if the social capital link to the retail trade is unsettled the entire distant and remote supply chain will suffer over a period, disturbing the social equilibrium and the organic social link evolved over several centuries. Before this ill-advised move, which is bound to fail, fails, it will lead to tectonic changes and cause tremors and tsunamis in the social capital-led retailing in India. It will displace millions of people from their places and jobs and undermine generation of new entrepreneurship and disturb the social order. And lastly it mocks at the UPA slogan of ‘inclusive growth’ as the proposed FDI policy tends to replace the OBC and minority communities in retail trade by foreign retail giants.

The government should therefore withdraw, in the larger national interest, this pernicious policy announcement. Or else, the opposition parties including the BJP and its NDA constituents, and also the CPM and its third front partners should take efforts to raise the issue in the forthcoming Parliament session and ensure that this policy is overturned. This is clearly a test for the BJP’s commitment to nationalism and the CPM’s loyalty to the common man.