The Hindu Business Line : The retail FDI bugbear

THE POLITICAL OPPOSITION to direct investment by foreign retail chains is a case of two old phobias hopelessly mixed up — of large size and the private sector, on the one hand, and the `foreign hand', on the other. Three types of arguments are reported after the recent meting with the ruling coalition's coordination committee. All comprise special pleading or flawed logic, with little research evidence. First, the issue of employment. To contrast retailing with manufacturing is laughable, because today the kind of manufacturing that comes into the country is not likely to employ the the semi-literate millions. If anything the retail, physical storage and distribution sectors, including transportation, have the potential to employ the vast numbers of under-educated youth as drivers, mechanics, delivery and in-shop staff.

Living in ideological isolation perhaps prevents some noticing the quiet revolution happening from the lowest levels on. The children of peons, domestic servants, private security staff and shop assistants are today better educated; some have a smattering of English and a disposable income beyond the dreams of their parents. Those with a degree of sorts seek employment in the back offices of multinationals. No doubt their diplomas may not be the best but they get jobs and earn incomes.

The fear of multinational retail chains charging lower prices is so weird as to raise a number of questions. Is this indeed a disadvantage? Do we want to ensure higher margins to traders? What of the hoary tales of exploitative and non-value adding middle-men? The forecast of eventual `squeezing' of the consumer is equally bizarre. If there is more competition, prices will drop. How, then, would FDI in retail favour monopolistic pricing? In any event, if large-scale retailing does squeeze the consumer, is it that a desi squeeze is more bearable than a foreign bear-hug? In fact, more fleecing the consumer for miserable value in return occurs when public or private sector factories enjoy limited competition and flabby overheads. Also, apparently one section of opinion is that there is plenty of money for investment in retail and, hence, foreign participation is unnecessary. If so, why is the huge opportunity in food processing and packaged branded low-cost edible products still unexploited? The cold chain and the logistics support required to make fortunes for farmers out of fruit and vegetables demand heavy investments. If money is in plenty, this avenue should have been explored well by now.

It is a pity that the real choice between organised, large-scale, chain shops and the round-the-corner Mom and Pop stores has been covered up in rhetoric. All over the world, wherever local tastes and preferences are paramount, the small company has flourished, playing its own role; where it cannot, however unfortunate that may be, the economics of scale dictates entry of large operators. They bring to the table the ability to develop suppliers, standards, packaging, ancillary services and employment — and keep prices low too. This may have its downsides, but it has nothing to do with the colour of their skin or their nationality.

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