Opening of retail sector: A welcome step forward

Our corporate sector in industries and service activities has so far limited itself to predominantly urban areas and urban markets. The rural areas that constitute the bulk – about two-thirds – of our geography and demography have so far been left out of the more modern business sector. Despite all our “Jai Kisan” posturing – one government after another at the Centre and by different governments in various states – our poor farmers and the rural areas have always been a much neglected lot. They have been in the news only when it is election time and our netas visit their huts and hamlets, or when several poor farmers commit suicide en masse as they do not have the means to keep themselves alive.

With the retail sector thrown open for the giants in that sector, there would be much improvement in the backward and forward linkages with the village economy. The inefficient traders and the positively greedy middlemen, whether in wholesaling or in retailing, would find it tough to thrive. So far, farmers were cheated by unscrupulous middlemen who would take the hapless consumers also for a ride by selling farm produce at steep prices. On the one end farmers would hanker for a square meal a day and on the other, the consumer paid astronomical prices for the food and other items of daily need.

Such inflation was justified, couched in jargons such as “supply side constraints“. If there were any constraints, it was in tackling the profiteering middlemen who may have found huge havens in the prevailing milieu of rampant political and administrative corruption. That should have been obvious, looking at the phenomenal rise in the prices of daily food items. There has been no shortage of food, with much of it is rotting in the government warehouses and  in the open, while the poor die and the middle class face steepling prices.

Ugly profiteering

Fears expressed about the increased FDI in retail sector eliminating small retailers is a smokescreen to cover up the ugly profiteering by middlemen. With large retail companies around, small retailers would continue to find a niche in the supply chain from the rural hinterland to the bigger towns and cities. If anything, the supply chain will be strengthened due to the influx of funds and superior organizational management skills.
The farmer’s produce is more likely to find adequate market and a faster flow of his produce to urban and semi-urban consumers. It is much more likely that today’s small farmer will prosper along with the small retailer.

India’s agricultural and rural sector has been much neglected over several decades, as the governments had little incentive to attend to the sector. Even political parties whose very existence is based on poor farmers or dalits and tribals paid just lip sympathy to this large section of population. In the brand of politics that India has experienced for the past several decades, power seeks power. Rest is mere rhetoric. It was unrealistic to expect real sustained supportive changes to come from the political wing.

However, the compulsions of the global retail business is going to change this reality. Global business necessitates efficient sourcing of inputs, nurturing of inputs for a continued business, building needed infrastructure for the flow of these inputs –  organised collection, quality control, cold storage of perishables, rural roads and transport, arrangement of rural credit facilities, and a reverse flow of inputs for the agriculture / horticulture – improved seeds, fertilizers, pesticides, harvesting machines, agricultural technology, technical consultation and basic management skills - from the industrial and urban sector to the rural hinterlands. Overall, it is going to be a win-win situation that will help bridge the currently prevailing rural-urban divide.

Almost all the nations in the world have opened up the retail sector to investment by multinationals. However, Indians have always suffered from the “East India Company” syndrome. The British have ruled many parts of the world, but for a strange reason, India has retained the awe and fear of that rule so much so that we have lost many earlier opportunities to integrate with the global business. Foreign direct investment has always been looked at with suspicion. Moreover, for our increasingly corruptible society and its mirror-image of politicians and administrators it was always easy to deal with Indian businessmen than with the foreigners. It was in their interest to perpetuate this phobia.

Due to the rapid slide of the rupee, rise in import commitments and pressures from the West, among other reasons, the government at the centre is now opening the doors for foreign capital and businesses. Out of these ‘negativities’, a positive opportunity has emerged for our further integration into the global business, new technology and modern management systems right into our hinterland. International business should be allowed to offer its contribution in the modernization of our long neglected sector. And, yes, we can always control the process; the government has already put several riders for the FDI in retail and can always monitor.

(The writer is a former professor of IIM Bangalore)