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FDI in retail unlikely to benefit small farmers
Jayshree Sengupta
30 November 2012

The way people were buying gold and silver this Diwali (on Dhanteras) did not indicate a serious economic downturn in India. Sometimes one wonders whether the gloomy statistics about the Indian economy have anything to do with the reality. Planes are going full to places and people are shopping and eating out in all big city malls and restaurants in large numbers. No one, taking a short trip to India from abroad, would think that the Indian economy is anything but robust and healthy.

But there is a crisis. Exports are shrinking, capital goods production is going down, imports are increasing, the fiscal deficit is big and inflation remains high at 7.9 per cent. Maybe the aggressive middle class, which is not a small number (between 300 to 400 million) to reckon with, is going about life undaunted. The informal sector workers are the ones who have to survive inflation and discomforts of managing within a limited budget which keeps shrinking in value terms. They too go shopping, but the difference is that they look for bargains and buy from cheap suppliers. They are not in a small number - around 800 million who live in low income neighbourhoods and villages.

They shop in local bazaars and weekly markets - perhaps they are scared of walking around in big malls and brushing against the intrepid shoppers of Delhi and other big cities. They patronise small retailers, street vendors and corner shops. The small shops may not be affected because of a new Walmart store close to them. The only snag is that the international retail giants have deep pockets and will source their products from all over the world, and the small retailers could be wiped out through sheer competition. Walmart will have cheaper and better quality goods no doubt.

The low income earners will abandon the street retailer once they realise that same products are selling cheaper in Walmart. It will just require getting used to Walmart or Carrefour for the average informal sector workers to start going there and not the weekly markets. Big gleaming AC interiors, smartly dressed sales staff and neatly arranged rows of goods which you can handle and examine will attract everyone.

The government has made opening up retail as a flagship economic reform item. Perhaps it knows well the retail mania of the public. Indians are great shoppers and love variety and are very price sensitive. If they find something selling cheap anywhere, they'll flock to those places in droves. Besides, if you have to manage your household budget during inflation, you'd do anything to beat it.

The fact that inflation is still high and Walmart is knocking at your door is an important reason why the government will probably succeed in opening up multi-brand retail to foreign FDI (up to 51 per cent). Many people also think that if the government has allowed Indian big companies to enter retail, why not allow foreign retailers? After all, they have fabulous stores abroad. Who doesn't like IKEA when abroad? It has good quality and tastefully crafted, competitively priced, durable household stuff which few can resist.

Yet opening up the retail sector will impact on the $450 billion retail business and will make many from the 44 million engaged in it jobless. Retail business in India will be like what it is in other developed and middle income countries - organised big stores with famous global brands and their own brands displayed in shelves. And 70 per cent of the retail business is in food. Most housewives would like to buy vegetables, food items wrapped in plastic because it is washed and even peeled and chopped sometimes. Because servants are going to be scarce, women would like half-prepared food to make life easier. Most women would like to buy from foreign retail chains as it is convenient, clean and easy to get what you want.

Will the farmers also benefit? What about the 92 million small and marginal farmers? Will they also be part of the big retail story? Will they be supplying to Walmart and get good money, not just one-third of the price paid by the consumer? With the middlemen gone, will they have access to seeds, credit and other inputs? Who is going to give him money advances for production and other consumption needs? In short, is he going to benefit from Walmart being the big buyer of fruits, vegetables and grains from agriculturists?

Most probably, opening up retail trade will not benefit small farmers because the problems of Indian agriculture are deep and need a lot of attention, infrastructure and investment which only the state and Central governments can provide and undertake. And it is not the big foreign retailer who is going to solve the problems of Indian agriculture. It will, however, make a difference to the big farmers and they will be better off. But it is possible that they will lose their freedom to do what they want and their bargaining power vis--vis big buyers will be reduced. Big foreign retailers will enable food to reach the consumer in a seamless, smooth way through refrigerated trucks. Food from "Farmer to Fork" will be without the middlemen and the consumer will benefit.

Since the majority of consumers from the middle classes are fond of having a shopping experience of a Western kind where everything from shoes to clothes, food and other household needs are under one roof, they would want this economic reform to be pushed forward. The poor are another matter but they also count. In the villages, the interests of the small farmers and low income workers making handmade goods may be jeopardised and this will be reflected in the forthcoming elections. So, most political parties are going to think hard. Thus, this reform has turned out to be the most politicised item in the recent economic history of India.

It is, however, not the reform that can change the face of Indian agriculture as the problems of small farmers and their vicious cycle of poverty have to end through state action and not by big foreign retailers. Thus, the government should not position this reform as a panacea for all ills in agriculture, and stress that the consumer will benefit enormously and more employment will be generated. This is because the big stores are not going to be labour-intensive and will consume more energy than small stores and will also be using much more plastic and Styrofoam than small retailers which are bad for the environment. Opening up multibrand retail to foreign marketing giants will benefit the shopaholic middle class no doubt.

(The writer is a Senior Fellow at Observer Research Foundation, Delhi)

Courtesy: The Tribune