FDI in retail will rout kirana shops

Kirana shop or the convenience store is something that we have grown up with. It’s always there round the corner for sourcing provisions for the household. We establish a personal rapport with the Kirana shop owner and most of the times it is a family-run business with all the members of the family taking their turn in running the store so that the facility is available all through the day and late in the night as well.

Since most of the time it’s a family-run business, family members will not mind putting in that extra effort required to keep the customer satisfied. I will call Kirana shop a small laboratory of entrepreneurial skills wherein the shop owner and his family learn practical business principles of inventory management, working capital pricing et cetera.

In the last 50 years, retail business along with transportation has absorbed a lot of migrant labour from villages in search of employment with little or no skills as well as capital. In the absence of healthy growth of the organised sector employment these two segments have been the greatest shock absorbers of the economy in terms of providing employment to the unskilled semiskilled migrants from the villages in search of employment to the urban areas.

Governments are now threatening the very existence of this important segment of the Indian economy which has played such a crucial role in providing employment as well as being the first testing ground of entrepreneurial abilities of small-scale business management. The previous regime has already taken a decision for 51% FDI into multi-brand retailing with the caveat that they can be started, provided they have the consent of the local state governments.

The present government which opposed FDI in retailing tooth and nail when in opposition has now gone a step further and has agreed for 100% FDI in single brand retailing and moves are on to facilitate hundred per cent FDI in the multi-brand retailing as well all in the name of providing employment opportunities to the people.

In the recent Davos conference, Trump seems to have remarked that the interests of America are priority one for that country. If the same principle were to guide the Government of India in taking a decision on an issue like FDI in retail sector they should summarily reject any proposal for foreign direct investment in the retail sector, whether it is in the single brand or multibrand. China opened up their economy for foreign investment at the right time and was able to open up on the retail sector while at the same time taking advantage of the investments in the manufacturing sector, in the process becoming the manufacturing hub for the world.

Though a late entry to the WTO, they systematically went ahead with their work and were able to reap the benefits of global capital to provide employment to their huge labour force in the manufacturing sector. India due to inept handling by the political leadership at that time failed to take advantage of this and we did not emerge as an important player in the manufacturing sector properly channelising the foreign direct investment.

Today the global conditions are totally different and with higher level of automation that is creeping in, even foreign direct investment by itself may not result in substantial increase in the employment in the manufacturing sector. That being the case at this point of time liberalising on the retail front and allowing big players with deep pockets to come in threatening livelihoods of thousands of retail shop owners would be suicidal to the interests of the country.

Further, there is also another angle to the whole issue of FDI in retail. Kirana shopkeeper delivers provisions as per your requirement. Multibrand retail stores on the other hand encourage consumerism and would like you to pick up items you may not really need.

Whether this type of consumerism needs to be encouraged by allowing foreign direct investment in the retail sector is another point that the government needs to consider before taking a decision on this issue.

The main issue of small retail shops vs multi brand retail chains remains even if FDI is not allowed in to the retail market since nothing prevents domestic investment flowing into this sector threatening the livelihood of the small Kirana shop owner and the other unorganised retail sector players. But there is a qualitative difference between the ability of the domestic investment to spread fast as compared to the FDI in retail sector.

Without the deep pockets of the foreign direct investment, the domestic investment would find it difficult to expand fast and setting up of the retail chain shops will only be incremental and over a long period of time giving sufficient time for the unorganised retail market to also find its own level to the organised retail.

The west has a way of protecting and promoting its own interests more particularly commercial and business interests. During the WTO negotiations they were able to successfully get the required concessions from developing countries on issues like intellectual property rights opening up of their economy for banking and service sector but when it came to opening up of their economies to agriculture they ensured Doha round of negotiations fail.

Developing countries have given away everything in terms of opening up of their economies to the west the way they wanted it without getting any corresponding benefit by opening up on the agricultural front from the side of the western countries. In the retail sector also, a similar situation may prevail – they getting what they want without giving anything in return for us.

Since the interests of livelihoods and employment of substantial portion of the population of the country is involved, the government should stand firm and should not buckle under the western pressure, particularly that of America who seem to be putting a lot of pressure on the government for opening up of the retail sector to the foreign direct investment which they know can be exploited to their advantage.

By: Krishna Rao Iyr

(Writer is former Chief Secretary, Government of Andhra Pradesh)