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UP govt’s decision is a shocker to retail firms

UP govt’s decision is a shocker to retail firms
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First Published: Mon, Aug 27 2007. 12 54 AM IST

G.V.L. Narasimha Rao
G.V.L. Narasimha Rao
G.V.L. Narasimha Rao
The Uttar Pradesh government’s order to Reliance Industries Ltd’s to shut its Reliance Fresh stores in Lucknow and Varanasi, citing law and order problems, and its decision to scrap the new, pro-retail sector, agriculture infrastructure and investment policy just three weeks after it was announced and hailed as farmer-friendly measure, is truly surprising.
The UP government has now constituted a committee of secretaries to examine the issue and advise the government on its future policy. And, until the committee gives the green light and the law-and-order situation improves, Reliance Fresh stores will remain shut. The state government directive has effectively stalled the Reliance’s plans to open 100 retail stores across the country’s most populous state.
It is strange that the state government ordered the closure of only Reliance Fresh outlets and not similar ones run by other companies (such as Spencer’s). It is a clearly partisan decision and smacks of vendetta. This move, however, could lead to a chain reaction with various state governments ordering closure of organized retailers citing the UP precedent. Reliance is investing over $5.5 billion in retail business, which will include hypermarkets, supermarkets, discount and department stores. It is also surprising as to why Reliance first chose to roll out its brand of ‘Reliance Fresh’ supermarkets rather than hypermarkets, as the opposition from small retailers is greater in the case of supermarkets.
Supermarkets are typically small, located in neighbourhood localities and have a potential to affect the business prospects of the unorganized retailers and hawkers in the vicinity. Opposition from these retailers and hawkers is thus hardly surprising. The repeated attacks on the Reliance stores—earlier in Ranchi, Kolkata and now in Lucknow—go to show that unorganized retailers, egged on by local politicians, fear the Reliance’s entry as a major threat, given its financial muscle and its reputation to achieve success by all means and against all odds. The unfavourable developments also show that the Reliance has a huge image problem and the company, it seems, has done nothing significant to clear the air or assure the trader community that the organized and unorganized formats could coexist and their entry would not lead to cannibalization of small retailers. Not recognizing this “public relations” issue is a sign of hubris for a large conglomerate like Reliance.
Until now, odds were that Mukesh Ambani’s brother and rival Anil Ambani’s well-documented proximity to the UP opposition Samajwadi Party’s leadership will likely mean that Mayawati would adopt a friendly approach towards the older Ambani’s Reliance Industries. Indeed, when the Mayawati government announced a new retailer-friendly agricultural policy earlier this month, that line of thinking seemed to be coming true.
But, the government’s latest decision to scrap the new agriculture infrastructure and investment policy, which allowed large retailers to procure directly from the farmers, allowed contract farming and gave the farmers the option to sell outside the mandi yards operated by the UP State Agriculture Marketing Board, and just three weeks after it was announced is a shocker to companies with big retail plans.
Lack of remunerative prices is indeed a major grouse among farmers so any policy measure that opens new marketing channels, on the face of it, is welcomed by farmers. So, the reason cited by the state government that a majority of the state’s farmers are opposed to the “historic and revolutionary” new agricultural policy as revealed by the state’s Intelligence Department survey, does not hold much water.
So, is UP government merely trying to protect the interests of small traders and farmers through its decisions or has Mukesh Ambani also fallen out of favour with the BSP regime in the state is the question to ask. I suspect Mayawati government’s decisions may have been prompted by political considerations at a time when the national political environment is in a flux and the stand-off between the Left parties and the United Progressive Alliance (UPA) government at the Centre is expected to lead to mid-term polls if not immediately, sometime in 2008.
After snatching the Brahmin vote from the BJP in the last assembly polls, with her latest actions against organized retailers, Mayawati is clearly eyeing the vote of small traders and retailers, the core support base of the BJP. But, farmers are also a very large and influential voting bloc, and a decisive factor in most electoral verdicts, so Mayawati wouldn’t want to antagonize this group as well. She has already accused opposition parties of spreading rumours that her government was planning to reduce the maximum land holding under the Land Ceiling Act. With various communities, including the Dalits and Brahmins, firmly in her hold, she is making efforts to expand her social and occupational base by appealing to other communities and occupational groups such as traders. And, with her latest actions, she has once again shown that she continues to be a mercurial politician who wouldn’t stoop to hurting even potentially friendly business groups if it helps her outsized political ambitions.
G.V.L. Narasimha Rao is a political analyst and managing director of Development & Research Services, a research and consultant firm in New Delhi. Your comments are welcome at thebottomline@livemint.com
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First Published: Mon, Aug 27 2007. 12 54 AM IST