I am amazed by the vociferous opposition in the media to the AAP's proposal to ban FDI in multibrand retailing in Delhi (http://timesofindia.indiatimes.com/business/india-business/AAPs-decision-on-FDI-in-retail-irresponsible-Commerce-minister/articleshow/28785884.cms). Newspapers are full of articles of potential losses of billions and also of more than 10 million job loss (http://timesofindia.indiatimes.com/business/india-business/Blocking-retail-FDI-to-rob-India-of-1-crore-jobs/articleshow/28807283.cms?). There is also a lot of talk of how big box retail will improve everything wrong in our country. The opposition may not be completely valid.
The reason that we have high wastage in agriculture is not the lack of systems. It is in fact the existing infrastructure bottlenecks. The cold chains can't operate profitably because of the lack of reliable electricity supply. The truck speeds are slow because of pathetic road conditions. There are high prices and variable quality in the produce because of the fragmented nature of the farm ownerships. All these are crucial issues which if solved would automatically impact the efficiencies of the retail business. The FDI is for direct retailing business. It will have no impact on the infrastructure. As it is the FDI route for cold chains has been open, without many takers, for quite some time now.
There is a difference between the type of jobs created by large retail and the small mom and pop stores. With Mom and pop stores there are entrepreneurs who employ one to four low wage helpers. They are served by entrepreneur distributors and entrepreneur vehicle owners (sometimes with bicycles). Thus the job quality and the level of income is higher for a majority of people. In organised retail, the salary structures and job quality are highly skewed. The super rich but small number of top management would have an extremely high salary as compared to an army of shop floor drones who would barely be able to survive. The salaries of Target and Walmart CEOs are more than 500 times the average salary of their employees (http://money.cnn.com/magazines/fortune/fortune500/2012/ceo-pay-ratios/).
Such type of income distribution is never good for any economy. High growth and increase of consumption can only happen in markets where the income structures are relatively level. The type of jobs in multi brand retail are thus not likely to create a favourable impact on the economy. Plus of course there is a possibility that the large retail may cause a job loss in the existing set up.
Proponents of large retail in India are demanding proof to show that if the existing large stores have caused any job loss as of now. However they avoid questions on the issue of the supposed benefits of large retail. Have large retail in India benefited farmers in any way? Have they led a significant price decrease for customers?
Efficiency does not always mean low price. Low prices of cigarettes could possibly cause havoc in the economy. Efficiency calculations with a smaller set in considerations are usually wrong and cause something what is called as 'local optimum'. For an alcoholic (or a cigarette smoker) low prices of his vice would be a great proposition. So, if we limit are efficiency calculations to the immediate satisfaction of the person, the prices must be as low as possible. However, if we extend the calculation to his lifetime, higher prices that lead to lower consumption could be better. (Am assuming that consumption is related to price and in cases of alcohol and cigarettes this could be wrong, but the the point is the nature of example and not the exact relationship).
Thus the low buying prices for the consumer could surely create a short term advantage for her. However in the long term, when the focus of efficiency is shifted from the buying transaction to the entire country, the effects of large retail could be very different. The documentary 'Wal-Mart: The high cost of low price' clearly shows that the public health care benefits that the Wal-Mart employees use are a huge drain on the tax revenue. Thus the low buying prices could be nullified by higher taxes.
I am of course assuming here that the large retailers are honest citizens. There have been multiple cases of policy manipulation (though lobbying) and corruption against most large retailers. Being super large they have a clout to conduct such activities unscathed, but this could be the issue of another article.
It is disturbing that the media savy and educated section of the Indian population are not even willing to consider the other side of the debate. News papers and TV media cannot be relied on so much to frame and base our opinions on such important issues. They have their own agendas. My appeal is for people to think on their own, to read alternate views, to go beyond 'popular' opinion and then decide. A society that is led by opinions manufactured by mainstream media can be a very dangerous place to live in.
The reason that we have high wastage in agriculture is not the lack of systems. It is in fact the existing infrastructure bottlenecks. The cold chains can't operate profitably because of the lack of reliable electricity supply. The truck speeds are slow because of pathetic road conditions. There are high prices and variable quality in the produce because of the fragmented nature of the farm ownerships. All these are crucial issues which if solved would automatically impact the efficiencies of the retail business. The FDI is for direct retailing business. It will have no impact on the infrastructure. As it is the FDI route for cold chains has been open, without many takers, for quite some time now.
There is a difference between the type of jobs created by large retail and the small mom and pop stores. With Mom and pop stores there are entrepreneurs who employ one to four low wage helpers. They are served by entrepreneur distributors and entrepreneur vehicle owners (sometimes with bicycles). Thus the job quality and the level of income is higher for a majority of people. In organised retail, the salary structures and job quality are highly skewed. The super rich but small number of top management would have an extremely high salary as compared to an army of shop floor drones who would barely be able to survive. The salaries of Target and Walmart CEOs are more than 500 times the average salary of their employees (http://money.cnn.com/magazines/fortune/fortune500/2012/ceo-pay-ratios/).
Such type of income distribution is never good for any economy. High growth and increase of consumption can only happen in markets where the income structures are relatively level. The type of jobs in multi brand retail are thus not likely to create a favourable impact on the economy. Plus of course there is a possibility that the large retail may cause a job loss in the existing set up.
Proponents of large retail in India are demanding proof to show that if the existing large stores have caused any job loss as of now. However they avoid questions on the issue of the supposed benefits of large retail. Have large retail in India benefited farmers in any way? Have they led a significant price decrease for customers?
Efficiency does not always mean low price. Low prices of cigarettes could possibly cause havoc in the economy. Efficiency calculations with a smaller set in considerations are usually wrong and cause something what is called as 'local optimum'. For an alcoholic (or a cigarette smoker) low prices of his vice would be a great proposition. So, if we limit are efficiency calculations to the immediate satisfaction of the person, the prices must be as low as possible. However, if we extend the calculation to his lifetime, higher prices that lead to lower consumption could be better. (Am assuming that consumption is related to price and in cases of alcohol and cigarettes this could be wrong, but the the point is the nature of example and not the exact relationship).
Thus the low buying prices for the consumer could surely create a short term advantage for her. However in the long term, when the focus of efficiency is shifted from the buying transaction to the entire country, the effects of large retail could be very different. The documentary 'Wal-Mart: The high cost of low price' clearly shows that the public health care benefits that the Wal-Mart employees use are a huge drain on the tax revenue. Thus the low buying prices could be nullified by higher taxes.
I am of course assuming here that the large retailers are honest citizens. There have been multiple cases of policy manipulation (though lobbying) and corruption against most large retailers. Being super large they have a clout to conduct such activities unscathed, but this could be the issue of another article.
It is disturbing that the media savy and educated section of the Indian population are not even willing to consider the other side of the debate. News papers and TV media cannot be relied on so much to frame and base our opinions on such important issues. They have their own agendas. My appeal is for people to think on their own, to read alternate views, to go beyond 'popular' opinion and then decide. A society that is led by opinions manufactured by mainstream media can be a very dangerous place to live in.
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