Wednesday, November 30, 2011

Arun Jaitley's selective amnesia on FDI in retail

Arun Jaitley has produced an eloquent opinion piece on 'FDI in Retail' for the Economic Times. In it, he carefully blends rhetoric and opinion to create 'fact'.

Here are two points I picked up on immediately. (Read the comments section on his piece for other rebuttals).

ONE
"Majority items to be sold by international retailers are going to be sourced from cheaper manufacturing economies like China. Clothes, shoes, toiletries and other items of daily use are not likely to bear Indian signature. The fall in manufacturing sector jobs is likely."

Ok, this one's easy. For starters, Jaitley ignores the fact that Chinese manufacturers have already flooded the Indian market place. We're already buying their toys and cellphones. Jaitley also ignores the fact that global chains already source a LOT of their wares from Indian manufacturers. Wal-mart - alone - targeted $600 million-worth of sourcing from India in 2006.

Also, one of the conditions for FDI in Retail is the company must source at least 30% of its products from small and medium Indian companies. This is a clear sop for Indian manufacturers who were worried about losing to other countries.

You say 'Only 30%'? I say it's a start. The government must, as Jaitley rightly argues, create a better environment for domestic manufacturers to operate in through reforms. But why must Indian consumers - who outnumber small & medium sector employees and kirana store owners - wait years for those reforms to take effect?


TWO 
"The pace at which domestic retail is growing is modest and it is able to co-exist with small retail."

Here, Jaitley implies Kirana stores have survived the entry of the Subhikshas and Vishal Megamarts and Spencer's only because the latter haven't grown too quickly. He again ignores a ground reality.
In many neighbourhoods, my own included, Indian retailers co-exist quite happily with kirana dukaans

In fact, take my neighbourhood of Sector 27 in Noida. It is similar to most urban Indian neighbourhoods in that it includes high-, middle- and low-income households. Within 150 meters of my home, I can choose between three kirana stores and one medium-sized Indian retail outlet - a Sabka Bazaar.
If I expand that radius to 500 meters, the kirana stores outnumber the Sabka Bazaar 10-to-1. I am not exaggerating. I've counted.

This is notwithstanding the fact that there is a VERY large Big Bazaar less than 2 kilometers from my home. This is roughly the kind of India we will live in post-'FDI in retail'.

By Jaitley's logic this should be impossible. And yet it exists; and has been this way for several years. How? Because not everyone buys from the Big Bazaar or Sabka Bazaar. And most people don't always want to travel or shop at the larger retailers all the time. Ergo, there will always be sufficient demand to keep Kirana stores going strong.



The BJP's logic on FDI in retail is flawed because it is selective. It is obvious whom they seek to appease with their stance. Whether their ploy helps them in the elections, only time will tell.

4 comments:

  1. well! walmart is no doubt wating our hefty parliament sessions. And FDI is a necessity in diversified nation like India as it is still developing. we should learn from countries like China being leftist too they have 100% FDI retail. More it is history that whenever any major change has to happen( rajiv gandhi introducing computers and opposition reaction) it has always been opposed. And wait eating a burger or chicken at Macdonalds or KFC doesn't means we have stopped going to dhabas. so for what the fight is? Now it seems politically motivated!!

    ReplyDelete
  2. Honda did not destroy Tata Motors, McDonald's did not destroy the dhaba, Adidas & Bata did not destroy Liberty, Coke did not destroy Limca (it exports it actually!) and Wal-mart won't destroy the kirana dukaan.

    ReplyDelete
  3. Nice article!
    It's the consumer who is at the receiving end of the benefit because of the competition! And without good competition, the locals will continue churning trash, and we'll continue living in the age of Kiranas!
    Also aren't we worried about the inflation!! so if someone comes out with pretty impressive means to curb it then it's appreciable, but sadly opposition doesn't understand this! It has to oppose everything the ruling party comes up with, even though it's in the national interest!

    ReplyDelete
  4. Thanks kstreetjournal. There are some valid concerns about job security, but I would argue that on balance this is a good move.
    Unfortunately, this government made itself an easy target with bad planning and timing. The opposition pounced where it saw the chance.

    ReplyDelete

Be respectful to others here or your comment will be deleted.