As expected, the decision to allow more foreign investment in the retail trade has set off a political firestorm. Parliament has been stalled for another day. Many chief ministers have said that they will not allow foreign retailers to set up shop in their states. Shares of many retailers dropped on Monday after political opposition gathered steam over the weekend.
There are around 40 million Indians employed in the traditional retail trade, making it the biggest employer outside agriculture. The politicians who are up in arms against the entry of foreign companies into retailing are presumably worried that this large chunk of the Indian labour force will lose out once the likes of Wal Mart, Tesco and Carrefour begin operations here.
A file photo of a grocery store in Hyderabad. (AP)
But wait a minute: foreign companies will be allowed only into cities that have a population of more than one million. So only the top 45 cities qualify. They have a combined population of around 120 million, or a tenth of India’s total population. I could not find any numbers about how many people are employed in the retail trade in these cities, but here is a quick estimate. Around one-sixth of India’s non-farm workforce is employed in retailing, from handcarts to kirana stores.
Applying this same proportion to the total work force in the biggest cities, we get a rough sense of how many people will be directly affected by the coming of foreign big-box retailers: around 8 million people.
That’s still a sizeable number, though it is highly unlikely that all 8 million will be suddenly thrown out of business. Traditional retailers have immense strength, and we have seen how kirana stores across the country have improved their look, offerings and service standards in the past five years. There is little by way of data or anecdotal evidence to suggest that there have been large-scale closures of neighbourhood stores.
However, the long-term trend is still against them. A recent study by The Nielsen Company shows that modern retailers are growing faster than traditional neighbourhood shops, which is the main reason why the market share of modern retailers is increasing.
To be sure, the advent of modern retailing will have huge effects on other parts of the economy. For example, it is likely that farmers will get better prices for their fresh produce but that will follow the shortening of the existing supply chain that has too many middlemen.
The government, rather bravely, claims that 10 million new jobs will be created in the next three years as a result of the new policy. Compare that with the 8 million jobs potentially at risk, and one can get some sense of the political calculus on this contentious issue.