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Retail sector should be regulated, opine panelists at BIMTECH Seminar

Jun 16, 2008
The retail market has to be regulated to avoid extinction of the unorganized retail segment, to avoid loss of employment to many small retailers.
This was the upshot of the panel discussion on 'Impact of organized retailing on the unorganized sector' which was organized on June 13th by Birla Institute of Management Technology (BIMTECH) in New Delhi. The panelists who were drawn from different political spectrums, organized and unorganized retail sector, the consumer activist organizations, political think-tanks, have endorsed the view that there should be a de-politicization of the entire issue to arrive at a pragmatic policy frame-work on retailing.
Kick-starting the discussion, Dr. Ashwani Mahajan expressed the concern about the ICRIER report, keeping the domestic retail and organized retail at par. Sooner or later, foreign retail chains would have an upper hand in the Indian retail scene. He also expressed the view that the body of evidences collated across the world clearly indicates that the price differential in the organized retailing was short lived. Once the monopolistic competition was caught up, there would be ramping up of prices as that had happened in the USA.
Echoing the same sentiments, Mr. Praveen Khandelwal, General Secretary, Confederation of the Indian Traders Association, said that "the ICRIER report had also indicated that 1.7% of the traders would have to close shop on account of the entry of the organized retail chains. In the Indian context, this would work out to 2 lacs shops per year. "This is a matter of great concern and none of the successive governments have given any thoughts to enhance the efficiency of the traditional distributive trade and neither is there any institutional credit available to the small traders," he added. He mentioned about the predatory pricing that would be resorted to by the organized retail sector by offering attractive discounts. The end result of this would be an unequal playing field which could push the 'self organized' retailers out of business.
Mr. Tapan Sen, Gen. Sec, CITU, mentioned about the social cost that would be incurred by displacing the traditional retail trade. There should be adequate measures for rehabilitating them and also for regulating the functioning of retail chains in India so that they are not being given an unfettered freedom. He made it clear that his party is not against the opening up of the retail sector but is extra cautious about the social backlash that such policy decisions can create if it is not properly orchestrated and the decisions are not taken in the most democratic manner.
Mr. Sumit Sinha, CEO, Aditya Birla Retail, said that there are a lot of misconceptions about the organized retail trade in India. It would leave enough space for traditional retailing and kirana shops, since the focus of the organized retail sector would be to sell multi-products like furniture, electronic gadgets, textiles, etc. through one window. He also referred to the price advantage, lower transaction costs, scaling down of wastages and better remuneration to the farmers, by the induction of organized retailing. He mentioned that Walmart in US co-existed with a large number of mom and pop stores, which is indicative of the co existence of both in a harmonious manner.
Reflecting the same sentiments, Dr Shriram Khanna, a consumer activist and professor in the Delhi School of Economics said there is a very high degree of politicization of the retail trade. He wanted a fair and transparent on these issues of national importance. The consumer, he said, is for organized retail since he gets the price advantage, quality material, redressal of consumer grievances and elimination of deceptive prices.
The others who spoke at the discussion were, Mr. Sunil Jain, Consulting editor, Business Standard, Mr. Pratap Somvanshi, Resident editor, Amar Ujala, N. Soundararajan, co-author, ICRIER report and Dr Jagadish Shettigar, Professor, BIMTECH.

DR. ASHWANI MAHAJAN

Food insecurity has already reached a dangerous level. Prime Minister has said the world is moving fast towards shortage of food. The Finance Minister has blamed USA for trying to makeup the shortage of petroleum products by using food products. Ethanol is being extracted from soya and land under cultivation of food grains is being constantly diverted towards bio fuels. As a result of all this, the world is facing a severe food crisis. Countering this US President blamed that it is the rising food consumption of Indians, thanks to their rising incomes which is the root cause of shortage of food grains world over. Though there is no logic in the argument of US President but it is a reality that India is fast moving towards food insecurity.

Government on wrong track
Food security is an internal matter of any nation. A nation cannot be dependent on foreign countries for food grains and other food products. As a nation ensures its external security, it has to ensure its food security as well. Condition of our agriculture was never excellent, but in the last two decades is has gone from bad to worse. Agriculture, especially food grain production was considered to be unnecessary. Our policy makers started suggesting the farmer that he should produce flowers and other cash crops like cotton, soybeans etc. for expo and domestic market to earn more incomes. Regarding shortage of food grains resulting from such a policy, the argument of the government was that we can easily makeup this shortage by way of imports.

On the one hand government was discouraging farmers to produce food grains; it was taking its hands off agricultural development. Government expenditure on agriculture was reduced from 27 percent in 1987 to only 6 percent now. In the process subsidies of various kinds were withdrawn or reduced drastically. In the last year itself food subsidy was reduced by rupees 3,000 crores. Government also kept on washing its hands off from its basic duty of making procurement from the farmers at minimum support price. Even minimum support price so declared was too less to cover even the cost incurred by the farmers. Under these circumstances, totally devoid of government support farmers had to face the market forces. In search of good profits they diverted towards cash crops. Area under food grain cultivation started declining. Thanks to increasing productivity total production showed a marginal increase but per capita food grain availability declined during this period.

Then started exploitation game by multinational corporations. Exploited by MNCs, the farmer went into severe debt. Farmers' suicides now have become a routine affair. Farmers insecurity got converted into food insecurity for the nation. Prices of Wheat, Rice, Pluses, Edible oils, Vegetables etc. all sky rocketed. Worst sufferer was the poor.

Farmer security versus price control
Government says that price control is top in its priority. But perhaps farmers security is not in their priority list. In the last 6 to 7 years lakhs of farmers have committed suicide and this tendency is increasing instead of declining. Farmers are being deprived of their arable land for making Special Economic Zone (SEZ). Basic facilities like Road, Electricity, Health & Education are lacking. Government is not only trying to shy away from procurement, it is also constantly reducing its presence in agricultural research.

Rising prices in the election year is giving sleepless nights to the government. To avoid further increase in inflation, the government has now turned to more and more procurement of food grain. Advertisements by the government shows that government is patting its back on this issue. If we go in the history, the same people used to call procurement by the government totally unnecessary and try to reduce allocation of funds for procurement. So far the government has procured 210 lakh tones of wheat by now.

Last year government agencies could procure only 92 lakh tones of wheat. An year before that 2006 they purchased 148 lakh tones of wheat. In both these years they were well behind the targets. Due to low procurement government had to resort to heavy imports of wheat. Government though was not ready to pay adequately to the farmer, paid heavy price for imported wheat. Their love for imports is demonstrated by the fact that they allocated rupees 6000 crores for import of 50 lakh tones of wheat in 2007, whereas they were not ready to increase procurement price for the Indian farmer even marginally. Whereas price of rupees 1300 to 1600 per quintal was paid for imported poor quality wheat, farmers were being paid only rupees 850 per quintal. At this time private companies appeared on the scene and offered up to rupees 1050 per quintal of wheat. Naturally farmers preferred private companies to government procurement agencies. Imports were eminent. Shri Sharad Pawar, Minister of Food and Agriculture, revealed government's mind. When asked about repercussions of this heavy purchase by private players on price front, he said "If the farmer is getting a better price [from private buyers, as Agriculture Minister I am the happiest person. However, as a Food Minister, if I face any problem, I will import."

Key to food security is farmer's security
Description above clearly shows that since the government decided to offer reasonable price to the farmer, it could procure 210 lakh tones of wheat. And now the government says that nation is comfortable on food front. Moral of the story is that if we want to have food security we need to secure the farmer. A small effort in the form of increased procurement price could change the situation drastically. The government should change its attitude. If we look at the international experience we note that even the developed countries have not only continued subsidizing their agriculture, they rather have increased their subsidies. Recent Farm Bill of USA aimed at enhancing agriculture subsidies to over 300 billion dollars clearly demonstrates their intentions. Indian government does not subsidise the farmers in any big way. In fact whatever little subsidy is there, it is constantly declining. Government agencies like FCI, NAFED, MARKFED etc. try to shy away from their responsibility of procurement due to non allocation of sufficient funds from government budget.
This year we may be able to manage the affairs with the help of wheat procurement to some extent. But in the long run government has to change its attitude towards agriculture. Government must take up the responsibility of over all development of rural areas, development of infrastructure in the form of Road, Electricity, Irrigation etc., protecting the farmer from market upheavals, providing crop insurance and remunerative price for their products may be some steps to start with. Government must understand that farmer and only farmer can save the nation's pride by providing food security to the nation.