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Resource centre on India's rural distress
 
 

Retail inaction: Govt's apathy is hurting both farmers & consumers
Since 1947, successive governments have missed innumerable opportunities to put the country on the path of sustained, inclusive growth. Time and again, quixotic ideology has led to meaningless debates, antediluvian policy and inexplicable strangulation of capacity buildup in both physical and social infrastructure. Even today, while the gap between current and projected national demand and supply is well acknowledged, the government continues to drag its feet in creating the policy and fiscal environment that is conducive to attract the hundreds of billions of dollars in domestic and foreign capital each major infrastructural sector needs: be it power, roads, aviation, railways and urban mass rapid transport, education, healthcare, housing, and clean potable water and sanitation.

However, if there is a single sector where the government’s views — or total lack of them — are, to quote Winston Churchill, ‘a riddle, wrapped in a mystery, inside an enigma’, it is the liberation and modernisation of the country’s increasingly inadequate, mostly broken and totally out of synch with rest of the economy distribution and retail infrastructure.

The price of this irrational and inexplicable paranoia from successive governments in the last 20 years in particular is borne by the poorest of the poor in form of back-breaking inflation, and the countless farmers who break their backs season after season in the hope of getting better returns for their toil. In contrast, all kinds of middlemen make merry at their expense and the farmers see the fruits of their labour rot before the produce can reach the hundreds of millions of waiting consumers.

One of the primary causes of sustained double-digit food inflation is not only the incompetence and insensitivity of leadership responsible for managing agriculture (or the weather gods), but also tens of thousands of middlemen and traders, and then a few million small, unorganised retailers who jack up prices at the first hint of a shortage — either due to irresponsible statements from the ministry of agriculture or vagaries of weather.

No developed country in the world, or any aspiring to be one or believing to be one, sees retail prices change so drastically from day-to-day for basic staples.

An efficient farm-consumer and manufacturer-consumer distribution system has the ability to dampen price and availability shocks and, in fact, as it becomes more and more efficient, actually lower the prices for the consumer while delivering somewhat better, more stable returns to the producer too.

Even countries that are increasingly more dependent on global supply chains for meeting their entire food and other consumer goods demands, such as the US, UK and Japan, do not see rampant inflation or price gouging at the retail tills. India, despite being blessed with exceptional food and agriculture production in particular, regularly experiences extraordinary swings in pricing both for the farmer and for the consumer, wrecking household budgets of the majority of the 1.2 billion citizens.

Unfortunately, the non-debate on modernisation of the country’s internal distribution and retail system has been overshadowed by an equally glaring non-debate on opening the sector to foreign investment.

Yes, there are countless statements from politicians, bureaucrats and self-appointed spokespersons for the ‘small retailer’, expressing their worries about what would happen to the middlemen and the small retailer if the retail sector is liberalised for large investment, whether domestic or international. But no one, including those who come to power in successive elections with the support of the aam aadmi rather than just the middlemen and rapacious traders alone, speaks for the ones who have been suffering and continue to the suffer the most on account of the gross inefficiency in this distribution and retail system.

It is even more ironic that the actual number of people engaged in retail trade, especially the independent mom-and-pop stores, have been growing year after year simply because the economy and, therefore, the private consumption has been galloping ahead at an unprecedented pace.

The country’s private, retail spending, estimated at about $530 billion today, is poised to cross $1 trillion (at current prices) by 2020. Of this, modern retail (domestic and potentially international too) will not touch even $200 billion by then, leaving an $800 billion or more opportunity for the traditional, small, independent retail.

Indeed, just to keep pace with an 8% GDP growth rate-induced increase in private consumption, the country will need an additional 650 million sq ft of retail space by 2015, and about 800 million sq ft more between 2016 and 2020. In absence of a clear real estate policy for the retail sector, it is unlikely that such space will come up, leading to even more spillage of retail activity on roads and footpaths and other illegal locations.

These raw facts and the clear and simple logic behind the need to modernise retail has been around for many years now. When will the government move its feet, discard the irrational segmentation between single and multi-brand retail, and put a stop to the meaningless discussion on the pros and cons of opening the sector to investment (wherever it comes from) without meaningless restrictions on percentage of equity holding from different classes (and origins) of investors?

Till then, the farmer will continue to contemplate suicide, and the common man will continue to pay a heavy price for his onions, sugar, pulses and bananas.

(The author is chairman of Technopak Advisors)