Support FDI in retail!

As some may ask, why am I blogging instead of looking after work related to the marriage? Well, we have a ceremony which in Telugu is called pellikodukuni cheyyadam. It literally means making/preparing/getting ready the groom. Post this apparently I am not allowed to step out of the house. The reaction from one of my friends, a girl, was "caged for life". Maybe this internment is meant to be a preview of married life ;-)

Now moving on, whatever may be its other faults or merits I like the present government for its initiatives like MGNREGS, RTI and the bills mentioned in the previous post. I commend Manmohan Singh's government for having guts, at least in some aspects. The decision to deregulate fuel prices, his firm stand against the Left with respect to the 123 Agreement with the US, and now the decision to allow FDI in the retail sector.

I have been disenchanted with the right wingers for having been very sore losers since the time of UPA 1. They are still intent on disrupting proceedings in the Parliament. One good thing wrt the FDI in retail decision has been that the FDI limit is 51%.  Management control would be with the MNCs but Indian ownership would also be there. Now the government has to ensure this does not get diluted via things like cross holdings. For eg say Bharti has a tie up with Walmart. Now the government has to ensure that Walmart does not get any additional stake via a different company in the ownership structure. I do not know whether this is even possible, and if it is I am sure this is but one way of reducing Indian shareholding. Also another surprise has sprung up recently. Apparently there was a clause that 30% of sourcing has to be done from the SME segment. Many ministers in the central govt itself thought this referred to Indian SMEs. Now it has been clarified that these SMEs need not be Indian. I hope no further surprises like these spring up.

The Indian agricultural supply chain is in sore need of improvement. Every year huge quantities of produce go waste simply because there are not enough proper storage facilities available. In addition there are a large number of middle men between the producer and the consumer. Consider a very simplified illustration in the cases of pulses in a city like Kolkata. The produce is brought to a place (I think it is called Dal Patti) where some basic processing is involved (removing the husk, splitting the seed etc). Then this is sent to a wholesale market like Posta Bazaar. From here the pulses are bought by retailers who in turn sell them to the customers. In this simplified chain itself we see three layers between the producer and the consumer (processor, wholesaler and retailer). There are brokers at each level to facilitate meetings between the buyer  and the seller. Granted there are some good aspects. For e.g. the broker in addition to acting as an all-important source of contacts also acts as a guarantor for the quality of the material. However imagine the increase the price by the time the item reaches the consumer. Mega institutions can help cut this number down or at least integrate them into a more efficient supply chain (consider ITC's e-choupal for instance). This is what India needs today. We have crossed the billion figure in our own country and this number is only going to increase in the near future. As lots of people George Bush Jr, Manmohan Singh et al) have pointed out Indians are demanding more nutritious items as part of their diet to our increased purchasing capacity. The government has to seriously think about how to feed this population. For how long can the RBI address the demand side without the government doing enough on the supply side? The agriculture minister needs to get cricket out of his head, at least for some time. Money attracts politicians like honey for flies but we must remember that flies can cause some serious diseases.

Also why are we so insecure about our domestic players? I believe there were similar fears when India was opened up in 1991. I don't think we are today anywhere close to annihilation as feared by the critics then. In contrast we are looked upon as an emerging economy (or as Obama said as an emerged economy) of great potential. The street-end kiranawalla has the advantages of proximity and familiarity which a modern retail outlet does not have. I am pretty sure that our mom and pop stores can take care of themselves. Anyway in the US I believe these hypermarkets are located in the suburbs and people simply drive down there. This kind of culture is not that prevalent in India, at least today. Imagine a middle class housewife taking a vehicle (bus, two-wheeler whatever) to a hypermarket which is 20 kms from her home, standing in queue and lugging the luggage back all that distance. I am pretty sure she would prefer the local grocery store any day. In India if the hypermarket is to be located in a more accessible location there are property rates to be considered. This might make sense for a clothing store, but would not exactly for a grocery store.

The problem in India has been and still is that our implementation leaves one wishing for much more. Many schemes might be well intentioned but the beneficiaries do end up getting a raw deal, and not rarely (leakage in MNNREGS and the PDS for instance). This has to be kept in mind wrt the FDI in retail decision also.