Posts Tagged ‘FDI’

Why Ramdev, Team Anna, BJP and all self proclaimed anti-corruption crusaders must support FDI in Retail

September 20, 2012

At the outset I must make it clear that I am not a blue eyed boy of capitalism on the contrary I admire Indian PSUs and strongly believe that BSNL/MTNL made it possible for India to have the lowest calling rates in the world. Also I believe that Nehruvian era policies were right for the period they were implemented. But I strongly believe FDI in retail will bring in systemic transparency in the system and therefore, anyone seriously concerned about uprooting corruption in the country must support FDI retail.

I don’t have the prose, the eloquence or even the brevity to put forth my point. I earnestly urge you to bear with my belabored explanation.

My first Argument is why the organized retail set up will put a tab on black money. My second argument will be why we need FDI in retail to aid growth of organized retail sector. Third argument is of how to cushion the effect on the ones whose lives will get affected.

Argument 1: The current unorganized retail sector offers very limited transparency. Most of the time, we don’t get a proper bill/receipt of the goods purchased and we all pay the MRP that includes the sales tax. Now I pay my sales tax to the retailer but what is the mechanism to ensure that he pays the right sales tax to the government. After all he doesn’t issue a proper bill and in all probability his books are prone to manipulation in the absence of any water tight billing system. Though the amount of sales tax due per individual shopkeeper might be minuscule, but if we consider the fact that we have one retail store for every 25 families in the country, an exceptionally high density of retail stores, the sales tax recovery amount might be bewildering. And moreover, it will not be an economically sane exercise to go after humongous number of all and sundry retailers for checking the books. And even if the sales tax dept were to go after individual retailers, it will not gather water tight documentary proof to nail the culprits who siphon off sales tax collected from consumers.

Now compare this scenario with an organized retail store that will issue you a computerized bill irrespective of whether you buy one item or you make the entire month’s shopping. This computerized bill transaction will be stored in a software application that cannot be fudged. The software application cannot be fudged because the reputation of large international software application developers will be at stake, names such as Microsoft, SAP, Oracle, JDA etc (I can elaborate further on software safeguards but that will divert the attention). There are legal compulsions on the companies to keep the record of all business transaction for a particular number of years. Therefore, if the sales tax department wishes then it can go through the software records to ascertain the tax evasion.

All I am trying to say, that we keep harping about transparency through technology in the public services. Though retail doesn’t qualify as public service but in the absence of any water tight technology in the existing unorganized retail set up, how is the public to ensure that every paisa of sales tax given by public to the retailer reaches the government for development purpose. The public indeed has a right to know, after all it takes sweat of brow to earn money and how am I to hold a retailer as custodian of the money that is supposed to go as sales tax and aid in cleaning of the nullah (open sewage) that passes next to my street and emanates unbearable stink as it cannot be covered due to exorbitant cost involved!

Moreover our dear Baba Ramdev once commented that we should abolish higher currency bills to keep a check on the money spent.  I am sure even the maid would prefer her monthly salary in crisp Rs. 500 bills for ease of handling! But the technology in the organized retail will ensure that every paisa transacted at a retail store of an organized retail chain, is well recorded. Baba Ramdev must see through it. Baba Ramdev and Team Anna talk about bringing constitutional amendments to kill corruption. Shouldn’t these crusaders also look into that how existing unorganized retail sector is prone to tax evasion?

The existing system, in the unorganized retail set up, of ensuring remittance of sales tax from buyer to retailer to government, is not fit to ensure or prove accountability. Having registered my vehement support for organized retail, I will not shy from the possibility that there will be tax evasions by big retail corporates. However, it will be systemically manageable and more rewarding to go after a big fish than chasing millions of small flies.

Every year massive amount of food grains are wasted because the Food Corporation of India doesn’t have enough storage space. Such wastage leads to shortage of grain and inflation. Organized retail corporates, would invariably build and own storage space and save tonnage of grains from rotting. Such a situation will not only fetch the farmer the right price at the right time but also go a long way in controlling inflation.

Argument 2: FDI in retail is needed to sustain the growth of domestic organized retail. In the absence of required wherewithal needed to support pan India retail chain, domestic organized retail will find it hard to sustain the growth. In order to ensure economy of scale, the global organized retailers, such as walmart, directly procure from the manufacturers and farmers. To effectuate such procurement, Indian retailers will have to develop an integrated supply chain, cold storage and adopt the best of the retail practices to cut down on costs. After all supermarket sale is all about topline, as the bottomline is very thin. Indian organized retail made a very late start and is still at a fledgling stage. If we wish to develop Indian retail Industry so that it can reach a competitive level to acquire retail business abroad, then we will have to have allow FDI. To give this argument that within due course of time Indian Industry can develop the wherewithal on its own without FDI, is akin to saying that until India can develop Boeing/Airbus Aircraft, the growth of Indian civil aviation sector must suffer!  Currently the Indian retailers are unable to procure directly from the farmers and vegetable produce comes from the local mandi. Such a procurement process ensures that the middle man is still active and thriving. Retailers can procure directly from farmers only if retailers can develop the infrastructure for centralized distribution. Moreover, because retailers still continue to procure from the middleman, we need to question the possibility of a future nexus between the middlemen and the retail corporate houses, leading to institutionalization of the role of the middleman even in organized sector. The entire idea of organized retail is to get the middleman out of the scene. And the more slowly the organized sector develops in India, the stronger the middleman might become. FDI in retail will fast track the established of firm organized retail sector in India.

Argument 3: My heart does go out to my subzi wallah who has been regular for last 3 decades, since I was a toddler. And his livelihood will be affected. But I take comfort in the fact that this subziwallah worked very hard and got his children good education. His son is an engineer and his eyes twinkle when he talks of how the son takes care of the father. The daily wagers will be affected. What is required is that government conceptualize, formulate and implement a scheme in which local subziwallahs will register themselves for employment in the upcoming organized retail sector. Then the government will impose some kind of an obligation on every store that comes up, to train these daily wagers and to employ them. FDI retail is going to be big and massive and industry will need the manpower for variety of backend jobs. This way we can cushion the affected. Moreover think about the helpers employed in the stand alone retail stores. Such helps, of course don’t enjoy any of the benefits of an organized sector. These people don’t get provident fund account, medical insurance, life insurance, regular work hours and the necessary standing to exercise their rights. The shifting of workforce from unorganized sector to an organized sector, the process would entail empowerment of the workforce.

Crying foul that many shopkeepers will be out of business, do we tend to forget the fact that such an upheaval would also involve betterment of the irregular work force employed by these store owners? Are we being too sensitive to the traders and less sensitive to the have nots?

Having said that, I also wonder whether the shopkeepers and traders are going to go out of business overnight. My thoughts on displacement of shopkeepers are as follows.

In Indian cities, where town planning is hardly effective in the implementation of segregation of residential and commercial areas, it’s a common sight to find next door retail stores of all and sundry. We will continue to approach the kirana wallah for odd needs and at our convenience. Moreover, we forget that these retail stores are going to come up in the existing market areas, which are currently occupied by someone. The people who already own shops in the market can’t be thrown out. Rather such owners will either become franchise of big stores, or let out their spaces or probably sell their shops. So considering such facts, I am sure that at least the current generation of retailers will be able to take the onslaught of FDI in retail. Yes the future generation of these retailers will have to think of some other business or job to earn their livelihood… so is that the concern that we are too worried about what the future generation of existing well to do store owners would do? Well then would it be all that bad to think what the future generation of all the people who don’t have a business would do as in most cases the future generation of service class would not get jobs of their parents by inheritance, which is largely not the case in business! As a person who has no business background, I feel slighted in the milieu of store owners and their political patrons, who play with the emotions of the farmers.  We are so concerned about maintaining the status quo of the ones who are involved in an unhealthy economic practice (1 store for every 25-30 families!), and we are too ignorant about the benefits that FDI in retail augur for the masses.

I am in my early thirties, and in my growing up days I had experienced and witnessed a wide chasm between the lifestyles of service class and business class community. However, post liberalization, the day to day life style standards differences between these classes started blurring. Though the effects of liberalization haven’t proportionately trickled down to underprivileged folks of India, but liberalization did establish wide Industrial complex in the country. The resultant impact was that instead of brain drain, we started experiencing reverse brain drain and greater number of professionals graduate from our universities. Greater and better opportunities have been made available to professionals. Not only that but also a lot of skilled and semi-skilled workers, who were earlier working in unorganized sector, were employed in the organized sector. As an inevitable consequence, the workforce in organized sector enjoys certain benefits/rights such as labour rights, provident fund, saving accounts, regular shift hours, medical coverage, insurance etc. The effectiveness of these rights and the extent up to which these rights are exercised, can be challenged. But what can’t be challenged is the fact that in the unorganized sector the workers hardly have any of the aforementioned benefits and a standing to exercise their rights.

If the government can formulate a policy of absorbing the local subziwallah/thelewallah into upcoming stores, then not only will the effect of displacement due to FDI be cushioned but also we will move a large part of workforce into the organized set up, resulting in greater benefit for the workers.

Bottomline: FDI in retail is necessary to chuck out the middleman, greater accountability of money spent at retail stores, control on inflation in due course of time, development of an organized sector that would augur good for workers currently employed in the unorganized retatil sector.