Shop talk

The Union cabinet has cleared the politically polarising decision to permit foreign direct investment,capped at 51 per cent,in multi-brand retail. This potentially opens the portals for firms like Walmart,Carrefour and Tesco. Single-brand stores can potentially be fully financed by foreign investment,meaning that brands like Ikea and Apple may finally enter the Indian market.

The organised retail market,currently pegged at $28 billion,is expected to swell nine times by 2020 if this goes through. Apart from the obvious surge in GDP this will facilitate,global organised retail is expected to cut out several levels of intermediation and push down prices. Besieged domestic retailers will be able to sell stake and raise money. Small shopkeepers,however,oppose the entry of organised retail,fearing a hit to their livelihoods. Those pitching for the change point out that we need a large injection of resources and innovation in retail infrastructure. Global money and improved supply chains would reduce farm wastage because of greater investment in cold-chain storage and distribution,extending the life of perishable produce. This welcoming of large-scale global retailers is not unconditional — their presence is restricted to cities of a certain size,and they must invest a minimum $100 million upfront,half of which must go into backend infrastructure,including transport and warehousing,and at least 30 per cent of the sourcing must be from local small and medium businesses. Large-scale retailers are also expected to create more jobs on better terms for workers in the unorganised sector,and contribute to tax revenues,as accountable corporations. Despite the alarmist rhetoric about global behemoths driving the traditional kirana stores into oblivion,worldwide data suggests that there is room for both to grow comfortably. Kirana stores offer a kind of customised experience and often sell on credit and deliver home — things that a large and impersonal chain cannot. If anything,their presence will goad local retailers into improving quality and value for money.

The cabinet’s decision will have to be ratified by the states,and it has already been vocally opposed by West Bengal Chief Minister and Trinamool Congress leader Mamata Banerjee. The Left and the BJP,and even some within the Congress,have declared their discomfort with the idea. It is unclear how the states will finally vote. However,by making this bold beginning,the UPA has signalled its desire to climb out of its policy paralysis.