FDI no threat to small retailers, says Montek

“Modern retail is an expanding segment and will more than double in a short time”

September 23, 2012 11:55 pm | Updated December 04, 2021 11:13 pm IST - NEW DELHI:

Montek Singh Ahluwalia

Montek Singh Ahluwalia

Allaying fears that opening up of the retail sector for foreign direct investment (FDI) will hurt kirana shops, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said on Sunday that modern retail was an expanding segment and it would more than double in a very short time.

“I don’t think FDI in retail is a threat to small retailers. Modern retail is the expanding segment. Those who say that the small sector would be hurt, I think they are wrong by the way,” Mr. Ahluwalia said in a CNN-IBN TV programme Devil’s Advocate.

Asked about the much-hyped reform which was once opposed by Prime Minister Manmohan Singh as then Leader of the Opposition in Rajya Sabha in 2002, Mr. Ahluwalia said: “I don’t recall what was said by every person on every day. Things move forward, perceptions change, circumstances change. I don’t think that there is any lack of clarity on FDI in retail. BJP was at that time pro-reform.”

Impact in Thailand

Asked about the impact of FDI in retail in Thailand where 67 per cent of the kirana shops had to be closed down, he said: “Look it is based on some studies I am not familiar with. The central point that we should make is, in a growing economy, if we have to achieve our objective of 8 per cent [economic] growth, in that kind of growth scenario, the total size of the retail market is going to be more than double in a very short time.”

Lauding the government’s decision to notify FDI in retail, Mr. Ahluwalia said: “This is a structural change. I don’t believe modern retail can expand fast enough to raise real wages. What happened in Thailand is not a predictor for what will happen here. In the next 20 to 30 years, do you want small retailers to have the same share in the market. I think it is completely wrong. This is like saying when taxis were introduced the share of tongas [horse cart] went down, one could bring them back, no.”

Asked what would be the impact on retail which is the second biggest employer in India with 44 million jobs, he said: “I think it is a complete misreading. Do you want modernisation of the retail sector or not? If you want modernisation of the retail sector, you want an upward pressure on quality of employment. Modern retail produces better quality of jobs.”

“Jobs would be created in many different sectors. Please look at studies on what is the quality of jobs in traditional retail,” Mr. Ahluwalia said.

“The quality of those jobs is very low. Young people with education who were joining the labour force will be quite happy in working for modern retail than being employed at traditional retail,” he said.

Walmart and retailers

On the apprehensions that WalMart presence could have a devastating effect on small retailers as per a global study, Mr. Ahluwalia said: “I am not talking about WalMart. It is an individual company. I think the circumstances are completely different and the reason for that is, in the U.S., it is very easy for someone to increase its share hugely by following a particular pricing policy.

“The consumer in the U.S. is geared to rush to hyper markets, buying for a week buying for a month. That won’t happen in India. The Indian case is one where modern retail has 6 per cent of the total retail market share. It would be an extraordinary achievement if they double that in five to eight years. We are least penetrated by modern retail.”

About Indian economist Jayati Ghosh’s estimate that one WalMart store would replace 1,400 small retailers at the cost of 5,000 jobs, he said: “The notion of modern retail, it may involve much higher labour productivity at the front end but at the back of that it is an entire new supply chain system where jobs are being created not in selling physically to people but in upgrading the supply. Unless you take that into account this comparison is meaningless.”

Jaitley’s concerns

About BJP leader Arun Jaitley’s concerns that foreign players will capitalise on India’s high-cost manufacturing base, Mr. Ahluwalia said: “What he is talking about is its impact. Tell him to go to Lok Nayak Bhavan, where there are a lot of small retailers, every one of them talking about Chinese goods.

“We have a huge tendency to import. Today, Indian modern retail has no compulsion to do domestic sourcing. If there is FDI, they will be compelled to do a significant amount of domestic sourcing.

Predatory pricing

On the law against predatory pricing, Mr. Ahluwalia said: “You want to go to the Indian consumer, and say I am going to have a law that prevents a retailer from lowering the price at a time when the Indian consumer is saying, do everything that lowers the price. I mean this is just nonsense.”

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