Opening the flood-gates

IT is reported that the Government is all set to permit for the first time the big foreign retail chains to open up their outlets in India. Their proposals for foreign direct investment (FDI) have reportedly received the support of the Ministry of External Affairs and the Prime Minister Office. As it is, for sometime now, FDI in bulk trade in India has been allowed. Its extension to retail trade is believed to hold the prospects of becoming the main arena for attracting FDI. This decision is reported to have faced some opposition within the Government, particularly by the Commerce Ministry. But evidently the more powerful ministries and ministers have thrown their weight behind the proposal to permit FDI in retail trade in the form of chain stores, operating on a grand scale. It may be noted that throwing open retail trade to foreign capital is not a part of any international obligation flowing from any multilateral agreement such as WTO concerning trade-related investment measures.

Is it a suo moto public decision or is a response to some specific proposals awaiting clearance or is it that some agencies not directly connected with trade are exerting pressure? The hypothesis of some pressure being brought to bear on this decision makes some prima facie sense. This is because the External Affairs Ministry is unlikely to take a position, leave alone a strong, decisive position, on a strictly economic issue which does not form a part of the MEA's own direct jurisdiction unless some interests connected with foreign countries are involved. This is not a minor matter in the sense that it is visualised that opening up of retail trade would attract large amounts of FDI, taking the country close to the realisation of the target of luring in $10 billion annually. Here is yet another instance of policies rooted in extraneous considerations to the exclusion of the sector/activity specific factors, like that of retail trade in this case. But the short-term gain by way of inflow of foreign exchange is really illusory. After one-time initial investment, bulk of working funds of foreign retailers would be provided by Indian banks or as suppliers' credit. Their annual turnover would be a multiple of working funds, making their repatriable returns very large. Thus for an initial forex gain, one would contract long-term obligation of large outflow of foreign exchange. Some other gains expected of FDI in retailing are: Modernisation of retailing, prospects of reaping economies of scale and scope and give the Indian shoppers the taste of newer things such as convenience shopping, shopping under one roof and the benefit of proper quality control and grading. The sheer fact of their knowledge of and access to bulk suppliers of quality goods, it is maintained, should enable the consumer to get better worth of his rupee.

Contrasted to the above, in India, most retailing is undertaken by small, own-account sole proprietary or partnership concerns. Lately more organised larger units too are appearing in the cities. Many Indian retailers are too small to be registered even under the Shops and Establishments Act and not infrequently they belong to the unorganised and/or informal sector. The term kirana shop mentality used by the management gurus is indicative of the archaic, primordial forms of organisation and management of retailing. In this context, it is implied, that the entry of FDI would introduce a whiff of fresh air, modernity and provision of greater value service to the consumer, including assurance of quality, after-sales service, financial gain on account of scale economies and pleasant ambience. With the liberalisation of the import of consumer goods, it is clear that the foreign trading concerns would enjoy an obvious upper hand vis-a-vis numerous, small retailers who are able to access such markets only through intermediaries and may involve larger margins.

A sober examination of the implications of retail trade by foreign companies would indicate how spurious, misplaced and context-free these facile suggestions centering round some mythical efficiency are. It may be mentioned at the outset that despite contributing 16 per cent of GDP at current prices and employing 7.94 per cent of worksforce, the trade sector in general and retail trade in particular has rarely been studied by the economists. As a result, any move to restructure it in a big and basic way, like by means of letting in FDI in this sector, goes, by and large, unnoticed, as though it were of no consequence.

Why is this highly dispersed, low-technology, low-capital, low- skill intensity activity, using largely family labour, but now moving towards more organised and modernised forms at least in the metropolitan and urban areas, is being eyed by the big foreign capital? Part of the answer lies outside India in so far as various country of origin and supplyside factors induce the retail chains, mainly from the Western Europe and North America to extend their diaspora to emerging markets like India.

This is an inevitable part of the process of globalisation and transnationalisation. Flush with financial surpluses, spurred by the oligopolistic-competitive urge to capture ever larger market share, fortified by a long inning of trading experience in many countries which helps reduce inventories, provide fresh avenues of sourcing, providing cushion against adverse conditions by prospects of offsetting losing areas against the expanding ones, it is not surprising that the retailing chains should try to explore newer pastures.

They would add glamour to shopping and bazaars and be further symbols of monotonous modernising homogeneity across countries. The crippled, colonised mindsets would surely find their appeal irresistible, particularly with the prospects of getting better access to imported goods or at least deshi goods under a foreign banner, with the hope of a uniform price. For such detribalised sections, attractive packaging and brand names become status symbols. It is such predilections and fads which are probably inducing a government swearing, for form's sake, by fierce nationalism both economic and cultural, but in effect, catering to the cravings of the crowds suffering from an identity crisis which may, at a more fundamental level, be inducing the bosses in the External Affairs Ministry to vociferously push the case for DFI in retail trade in India. Given the growing chasm between India and Bharat, the powerful votaries of India, despite their Hindutva mask, are bent upon ignoring the disastrous consequences of their moves for Bharat. It is not realised that their India is a fictitious non-authentic, grafted construct - an anomaly and would ultimately have to pay rather dearly for this mad rush to make India a mimetic, carbon-copy of the West in such high visibility arenas as retail trade.

The thing to realise is that retail trade as an easy entry, low- capital and skill intensity sector is a major avenue for employment generation in the economy. Its presence is much greater in the informal sector. In a country with highly sluggish and woefully inadequate rate of growth of meaningful employment opportunities, retailing in various forms is easily the first component of the coping strategy adopted by the fast growing marginalised, socially-dispensable hordes of outcasts-ranging from the pavement vendors and peripatetic traders to street corner grocers, bakers and confectioners to various sales cum repair outlets. Personnelled by men, women and children, these activities marry simple and easy income-generating activities with highly personalised, tailor-made consumer convenience, especially for the sections endowed with low, uncertain and irregular purchasing power. Various tiers of other intermediary traders, related to these lower rungs of retailing, also simultaneously perform retailing functions which have not been found wanting in any serious sense except the tendency to capitalise on scarcities and go in for tax evasion. FDI in retailing would be at least as much prone to these temptations, sans the informal retailing's character of being a population industry embedded in community links.

In its collectivity trade is a major employer. According to 1991 census 7.5 per cent of the working population was engaged in trade, as compared to 4 per cent in 1961 and 6.3 per cent in 1981. Work opportunities in trade have grown at a comparatively faster pace. During 1977-83, trade sector employment increased at 6 per cent per annum, next only to the construction sector.

During 1983-88 and 1988-94, this sector saw employment growth rate of 3.83 per cent and 3.33 per cent only. During these later years Indian chain stores have made their forays in many areas. If large amounts of FDI are permitted, the displacement competition would kill a large number of self-employment and wage-employment opportunities in trade.

The Indian economy has witnessed many signs of senility in its early growth phase, like hyper growth of the service sector. This is a reflection of the limited growth of industries, their inappropriateness to our structure and needs.

Entry of FDI and modernised, large-scale retailing would make this highly competitive sector oligopolistic, reduce own-account work and income earning opportunities by ousting small, pavement, street-corner and peripatetic retailers and increase inequities, differentiation and resulting social tensions and unrest.

The adverse employment effects of liberalisation, marketisation and opening up would reach a flash point, if the trade sector self-employment too falls a prey to displacement competition unleashed by big foreign players. The entry of big foreign restaurants and food processors has made deep inroads into the market of street corner eating joints and halwais.

For satisfying the consumerist fads of a small minority, are we to sacrifice the safety-value employment opportunities offered by trade and household industries to the most vulnerable ones?

The backward linkages of FDI based retail stores would strike some really lethal blows to small industries and artisanal household industries unable to make bulk supplies to these big retail chains. Those few who survive as dependent units would be unilaterally dominated by these giant trading companies.

With impending opening up of the flood gates for the import of consumers goods, even India's big and medium industries would find the pitch queered as these foreign chain stores would find it cheaper to push imported goods into Indian markets where there is a widespread special penchant for foreign goods.

Among the many factors which go to point a dismal scenario for the Indian economy in the wake of the full implementation of the WTO dictates, the entry of foreign retailers would find a prominent place. As of now, retailing is attractive to the FDI as it can make do with India's existing inadequate infrastructure unlike manufacturing.

Then, retailing does not face demand constraint like that faced by manufacturing. But how does it help India? By weaning away existing high spenders, such FDI only intensifies displacement competition.

It may be mentioned that realising the poor employment growth potential of catching up industrialistion, Japan, in addition to employment-friendly land reforms, and subcontracting, continued with labour-intensive construction sector and mom and pop stores by excluding the entry of big money, both local and alien, into these areas.

That a government supposedly based on the support of lower middle class trading community support is all set to strike a deadly blow to this section, triggering off waves of displacement, only proves that their market fundamentalism is basically wedded to the interests of big money, both Indian and foreign. This component of second generation reforms is really a ominous portend for the Indian economy.

Kamal Nayan Kabra

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