Retail Tragedy

November 29/2011: India’s retail market, estimated to be worth Rs 2.3 lakh crore in size, is facing grave peril. This sector contributes to nearly 7% employment opportunities of this nation. The Cabinet approval of 51 per cent Foreign Direct Investment (FDI) in multi brand and 100 per cent in single brand retail business has raised widespread scare that it would ruin farmers and small traders in the country. The Union Government, on the other hand, is asking the populace not to worry. FDI would not only benefit the farmers, it claims, but would also generate vast employment opportunities in the country. Ground realities, however, tell a different tale. Maybe for this reason, many political parties, including Biju Janata Dal and its Chief Minister, Mr Naveen Patnaik, have categorically opposed this move of the federal government.

Despite strides in industry and the service sector, the fact remains that India is still, predominantly, an agrarian economy. Rural India not only feeds itself on what it produces in its farm lands, it also meets its other daily needs with the help of agricultural produce. The Government admits that about 32 crore rural folk spend their lives toiling on their lands and wrestling with the vagaries of weather. A majority of them are small farmers who own only a few acres of land. Collectively, however, it is these small and landless farmers who produce the largest share of the national agricultural output. About 60 per cent of the produce is used up in feeding the family and meeting the expenses of agriculture such as buying seeds, cattle-feed, fertilizers and paying water cess alongwith loan repayments. The remaining 40 per cent reaches the market. With the income from selling his produce the small farmer meets, with great difficulty, his other needs in life.

If the Government thinks that FDI in retail would be kept limited to a specific percentage, it is living in a fool’s paradise. A little allowance now would of course lead to greater demand in future.  It’s a reminder of the Arab and his camel wanting to get into the tent story. Here the multinational retailers will be the camel who would surely move into the tent completely and dislodge the present system. History tells us about the East India Company and the aftermath.

Let us not forget that the paddy procurement system that has been established over the years in the country is very feeble and does not reach everywhere in most of the states. It is amply illustrated whenever good rains or irrigation lead to bumper harvests which, ironically, in turn lead to distress sale by farmers. Not only Orissa but also Andhra, Karnataka, Maharashtra and most other states abound in bitter tales of successful farmers committing suicide because they are unable to repay their loans. This allows for only one conclusion: neither the Government procurement system nor the profit seeking private mechanism ensures fair price to the farmer for the money, material and sweat he invests in producing food what we all eat.

It would be highly delusional to believe that a benevolent desire to mitigate the miseries of India’s poor farmers is what makes foreign retail chains so eager to enter the market here. Halting distress sale by farmers would surely not be uppermost in their agenda. Profit is their only motive, let us not have any doubts about it. As fair business practice, it would be but natural that the foreign retail chains would try to minimize competition from domestic players or, if possible, completely finish them off with the help of the immense wealth at their command. That would imply tremendous holding power. While they are at it, they would offer some temporary gains to the consumers by offering cheaper goods to undercut the local system. That would certainly hasten the dismantling process of the procurement machinery that currently exists in the country.

With boundless reserves of capital at their disposal, it would be easy for them to absorb huge short term losses. They would not, for instance, hesitate to procure food items and grains from other countries where they can source it less expensive. This practice already exists for these huge retail chains anyway.  Added to this is the average Indian’s mediocre and twisted values which would prompt him to lap it up all, not because of taste and quality but because it would be cheap. In such a scenario, those presently dealing in paddy and agricultural produce would no longer find it profitable or even be able to sustain their trade and would be compelled to move away from that business. Subsequently, it would be hard for the Indian farmer, who has very little space to budge, to find buyers for his produce. He too would have no alternative but to move away from farming itself and later on get enticed to sell his lands.

This would create fertile ground for the foreign retail chains to hike the prices of their goods at will. Consumers in towns and cities would have nowhere else to go. Like the foreign institutional investors earlier who left the country in the face of recession, these retail companies too would not hesitate to abandon us when we would be too poor to pay for their products. So for us it would be nothing but a case of the proverbial ‘from the frying pan to the fire.’ Will it be possible then to rescue our farmers and send them back to the fields so that we can get some food? Should that succeed, there would be none who would buy, process and transport such produce to the market.

If China has gained worldwide reputation as a giant economy, it is because it has consistently tried to establish itself as a producer and manufacturer, not a consumer. We, however, are happy to be consumers, never mind if the goods we buy are of substandard quality. Just that they should be for a bargain and real cheap.  That is all that we bother about.

Politicians, of course, especially those in power now, have an interest in pandering to this trait of the consumer in us, for it may fetch them that most valuable item ever in the bazaar—votes.. But if what the Government of the day proposes does come to pass, India would forever lose its self-sufficiency in food. And that would undo all the progress we will have made. If we do not recognize this impending tragedy well in time, it should not be considered impossible that soon the day would come when we would end up in the company of a Sudan or a Somalia or some such miserable African country.  There would be many who praise this move today. Little or no vision leads these interested people to do so. Personal gain, not national well being, drives their desires and actions.