It is indeed disappointing to see several recent pronouncements that effectively imply status quo on policy towards the retail sector in India.
First, in June, came the parliamentary standing committee recommending a ban on both foreign and domestic corporate investment in the retail sector. Our political leaders, it seems, are quite all right with the current state of the unorganized retail sector—where the working conditions leave a lot to be desired, productivity levels are generally low and business and pricing practices least transparent.
Photograph: Abhijit Bhatlekar / Mint
Next, minister of state for commerce Jyotiraditya Scindia said in July that the current foreign direct investment (FDI) policy on retail would remain unchanged, implying that the present situation will continue. This is most unsatisfactory because in the absence of a real policy, we can neither regulate the sector adequately nor provide the needed protection to small farmers and producers, who simply have to accept the ground realities where regulatory provisions are lacking.
Thankfully, the minister for commerce and industry has remained non-committal and kept his options open. We want to, on the basis of extensive research done at the Indian Council for Research on International Economic Relations (Icrier), encourage him to re-examine the costs and benefits of modernizing the retail sector and, more specifically, take cognizance of the recommendations made in a May 2008 Icrier report authored by Mathew Joseph (and others).
This study was based on the largest-ever survey of all relevant stakeholders in the retail business. The survey covered 2,020 traditional retailers across 10 major cities, 1,318 consumers shopping at both organized and traditional retail outlets, 100 intermediaries and 197 farmers. In addition, 805 traditional retailers not in the vicinity of “supermarkets” in the four metros were surveyed as a “control sample”.
One of the study’s main findings was that over and above the observable benefits, modernization of retail will result in various positive externalities such as improvements in logistics and infrastructure and efficiencies in the supply chain. Traditional retail relies on several layers of intermediaries, each of which adds its margins and commissions, so that there is a significant differential between farm-gate and shelf prices. This also explains the rising gap between consumer and wholesale prices in consumer goods. Traditional retail results in close to 40% wastage due to multiple handling of the produce; that too poor handling due to lack of cold storages and inefficient packing. Modernizing the supply chain and using clean and scientifically designed warehouses and cold chains will result in immediate gains.