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Gallows for the Retailer

R Vaidyanathan*
The talk of the time is retail revolution. It is a revolution which is applauded by the planners, encouraged by the Government and eagerly talked about by the experts. One group of experts feels that without FDI the revolution may not even be of global standards. That is, opening up the country to global and domestic sharks Another mega scam in the making? Twelve crores of people are going to be directly impacted due to the so-called retail revolution. It is noose for the traders! rade, wholesale and retail, constitutes one of the largest segments of our economy. It is next only to agriculture and has as much share as that of manufacturing. With a GDP of nearly Rs 60 lakh crore for the last year we find that the share of trade at 16 % is nearly 10 lakh crores at current prices. It is the juiciest aspect of our economy growing at a compounded annual real growth rate [CAGR] of more than 9 percent. Even assuming a conservative estimate of twenty percent margin on this value addition we get a figure of nearly Rs. 2 lakh crore which will make any domestic or global player to salivate on the projected income statement. We have provided in Table-1 some salient aspects of trade which indicate its importance and phenomenal growth. We find from Table 1 that more than 16 percent is the share of trade in NDP during 2008-09 at constant prices [which is higher than manufacturing and even agriculture] and it is growing at more than 9 percent. Hence the interest of global players to enter retail trade. How Many Will Be Marginalized? Unfortunately, we do not have exact numbers regarding the number of families or individuals employed by our trade sector. The figures provided by the Government in the Economic Survey is laughable since it mentions believe methat 3.51 lakh persons were

*R Vaidyanathan is Professor of Finance and Control, Indian Institute of Management, Bangalore.

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Table-1
Share of the Three Major Sectors in NDP and Growth Rates [At constant prices] [Rs. Crore] Categories Agriculture and allied activities Manufacturing Trade Total NDP [including other Activities] 2004-05 517651 [19.6] 354196 [13.4] 424848 [16] 2646370 2008-09 595017 [16.1] 501641 [13.6] 608971 [16.5] 3688991 Growth Rate 3.54 9.09 9.42 6.48

Note: The NDP is at factor cost and at constant 2004-05 prices. Growth Rates are Compounded Annual Growth Rates [CAGR} at constant 2004-05 prices during the period computed from NAS 2010. Figures in bracket represent the share of the category to total NDP. Source: National Accounts Statistics [NAS] Central Statistical Organization [CSO], New Delhi.

employed during 2004 in the private sector in the whole sale trade and retail trade in the whole country. According to the same data it was 3.60 lakh during the year 2003 and it declined to 3.51 lakh in 2004. In one suburb of Mumbai itself it could cross one lakh. It is interesting that no Member of Parliament has moved any privilege motion in the last so many years for such fiction given in the name of data to Parliament. A 2003 State-wise survey by Ministry of Labour suggests that there are more than 45 lakh shops employing more than 30 lakh persons. Then there are nearly 9 lakh commercial establishments employing nearly 32 lakh persons. Including restaurants it suggests that there are nearly 70 lakh persons in all earning their livelihood from these

activities. We think it is an under estimate since it does not fully cover all states and UTs and also owner running establishments wherein the employee is also owner. The Census 2001 provides more elaborate data. It says that 269 lakhs are main workers and 24 lakhs are marginal workers in wholesale and retail trade. It imply that nearly 3 crore are dependant on it. There are 1.1 crore in urban areas and 1.9 crore in rural areas. Of the total, nearly 1.7 crore are less than matriculation educated. Hence the livelihood of more than 30 million are involved and based on dependants in the form of children and others we can say that at least 120 million that is 12 crore are going to be directly impacted due to the socalled retail revolution.

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also close early. Here the local retailer What Is the Retail Revolution? It has three major components. The keeps it open using his family labour real estate sharks will occupy prime for more than 16 hours per day and all land and in some cases evict the days. The kirana shop adjacent to my retailers and construct major malls. This home opens at 7 am and closes at 10 pm will be a tremendous blow to the small every day for 365 days of the year. He and medium retail shops. The house- is very efficient, has home delivery holds are expected to create a retail shop system based on a mobile call and inside their homes and store litres of knows tastes and price considerations colas and bundles of toilet paper. of our family. But he is called unorgaMoving the retail store into individual nized by our experts and National households is the major revolution. The Income data and made to feel guilty. third aspect is the razzle-dazzle of The footfall in his shop cannot be measured using chilling it off in The real estate sharks will occupy cool atmosphere prime land and in some cases evict the Western models retailers and construct major malls. [since there is no and buying things This will be a tremendous blow to the place to keep anywhich are not even small and medium retail shops. bodys foot inside remotely going to his shop] and so he is derided and be used or useful. The argument given is with respect to abused. It is like clubbing housewives improvements in technology and intro- along with prostitutes in our census duction of software. As if a computer data to show them that they are generated unreadable bill is the panacea involved in unproductive activities. for all our problems when the local shop These are economic constructs imposed by the West on the rest and it is a form keeper can multiply and add in a jiffy. It is also suggested that these new of terminological terrorism which is malls will be open longer hours. This mouthed ad-nauseam by our econoargument may be useful in the West mists and policy planners without where they close shops for Sundays and understanding the implications.

When the President does it, that means that it is not illegal. Richard Nixon Man is the only creature that consumes without producing. George Orwell

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net based banking. Of course, someone The Weak Are Marginalized The retail trade suffers from two suggested about no-frill banking for major issues. One is the non-availability which forms are getting organized to of credit at reasonable rates from insti- generate more thrills. Large corporates tutions and another is the bribe given to discuss about base rates. But my flower extortionist Government babus and their girl and my vegetable vendor get it at minions. Nagamma has been a flower half percent per day. [Returning half vendor for more than twenty years in rupee for hundred rupees borrowed in my suburb of Bangalore. Several times the morning]. This will work out to be she joined informal chits to save some more than 180 percent per annum. My money and generate loans during need. retail provision stores man gets it in an Many times the persons who ran the chit interesting way. He gets Rs 45,000 [for ran away. As a finance professor, I a loan amount of Rs. 50,000] up front thought I should do some good in the and pays Rs. 500 per day for 100 days to world of practical finance and advised repay Rs. 50,000. It turns out to be more than ten percent her to open an The retail trade suffers from two for three months. account with a major issues. One is the non-availability of credit at reasonable rates More than 70 percommercial bank from institutions and another is the cent of working for saving her hard bribe given to extortionist capital requireearned money and Government babus and their minions. ments of retail perhaps get a loan later. The branch manager who is a trade in 2009-2010 have come from pleasant lady knows the flower vendor non-bank sources. The other perennial problem faced by for many years but the Core Banking Solutions [CBS] with its Central Server the unorganized retail trade is the located at Davos or Basle will just not organized dacoity undertaken by the recognize Nagammas. System decides minions of the State. They need to bribe about accepting new customers under the cops, bribe the municipal authorities the Know Your Customer [KYC] and other local goons who are outnorms using Multi-Factor Discriminant sourced arm of the extortionist State. It Model of Non-linear Credit Rating. She can be as high as Rs 20 on an income of was asked photos, proof of address, pan Rs200 or so per day. That is 10 percent number, proof of date of birth, her dogs of gross income. The same is true of surname; references and also given fruit seller to fast food idli joint to exotic choices of using debit card and beauty parlour to chemist shop.

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Instead of looking at these two impor- EPW Research Foundation, March 18tant constraints imposed on the 2006; EPW, Mumbai] during which the growing productive, efficient, and household sector in trade, transport, effective retail trade our planners want construction, restaurants, and other to open it up to global sharks in the business services has been growing at name of liberalization. It is interesting more than 8% CAGR. Here, households to observe that already large portions of include agricultural households and to the credit requirement of the retail trade that extent the fall is very significant. are not met by banking channels. The We find that 43 percent of debt of rural credit requirement of this sector would house-holds is from moneylenders and be at least Rs 6 lakh crore [60 percent of 25 percent in the case of urban housethe value addition of Rs 10 lakh crore holds. [Computed by us from this year] since most capital in trade is Household Indebtedness in India; working capital It is interesting to observe that already Statement 6; page 25; NSS and not more than large portions of the credit of 30 percent comes requirement of the retail trade are not Ministry met by banking channels. Statistics and from institutional ImplementationGOI credit. Substantial portion of retail Programme trade is done by partnership /proprietor- New Delhi; December 2005.] Hence ship firms or self employed persons all we need to recognize the importance of of which are categorized as households the entire spectrum of non-bank sector for savings and credit data in our rather than in a segmented fashion. The planners should address this issue economy. Major portion of financing of trade is done by non-institutional rather than wanting to invite major real players like money lenders. We observe estate agents to enter into retail trade. that the share of house-hold sector in The harassment from various minions outstanding bank credit has come down of the state machinery - as earlier mento 47% from 58% between 1990 and tioned - like police, municipal authori2004 [See table 13- Increasing ties, check post officials, labour departConcentration of Banking Operations- ment, weights and measurements etc.[
If I have seen further it is by standing on the shoulders of giants. Isaac Newton All animals are equal but some animals are more equal than others. George Orwell

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the list extend to at least 50 agencies] that significant players in the retail revand the bribe tax paid is mind boggling. olution are linked to real estate business At a conservative estimate of five per- and it tells the inside story of another cent we find that at least Rs 50,000 mega scam much larger than the SEZ crore is the bribe received by various in the making. The global chains like Wall Mart have government extortionists called public servants. The street side vendors and not succeeded in Germany or Japan but hawkers have additional issue of zoning in Mexico since the former two counproblems since the fact that they play a tries have well developed regulations very important economic function and and local competition to protect comhave substantial entrepreneurship is nei- munity based local shops. In developing ther recognized nor appreciated by the countries with weak ownership records the real estate sharks will lead the retail metropolitan elite. The pressure on the illiterate retail revolution. For anything and everything the trader will be very large. He will borrow at much more The global chains like Wall Mart have p o l i c y - m a k e r wants Indians to atrocious rates to not succeeded in Germany or Japan but in Mexico since the former two emulate the repay his past have well developed regulations to Japanese, the burden and in the protect community based local shops. French, the absence of any social security net will resort to suicide. Germans or the South Koreans. All The Government, including the PM, has petroleum services and products, rice, been talking of improving the living tobacco, salt, alcoholic beverages and standards of SC/ST and OBCs and fresh food traded at public markets are Muslims. It is pertinent to note that sub- excluded in Japan from any distribustantial portions of Muslims who are tional aspect by companies of other into business are in retail trade. In a countries. Australia, Japan, South Korea sense one part of Government does not do not allow trade services in petroseem to know what the other part is leum, its products, rice, tobacco, salt, doing. The impact on the community milk, fertilizers etc by foreign compawill be phenomenal. Also, large number nies. French using their Loi Royer of retail traders is in their forties and simply restrict any development of fifties and the issue of getting re-trained hyper-markets to protect what they call to move on to other avocations will be the centres of French towns and vilimpossible. It is interesting to notice lages and the living of small shop-

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keepers. Germany has legislative constraints on outlets above 1200 sq.m. This is despite trade constituting a relatively small portion of their economy both in terms of employment and value addition compared to India. What Is To Be Done? The Government should enhance credit availability through institutional channels by fixing targets, if needed. It should facilitate modernization of spot markets like APMC and encourage linking up retail using mobile etc technology to get power of large purchases. The zoning system should be introduced to facilitate the livelihood of hawkers and other petty traders. A percentage of bribe tax should be impounded or Government employees in identifiable areas should be levied a cess to create Social Security for retail traders. A ministry to exclusively take care of domestic trade should be formed. Last but not the least, let the reformers, many of whom are beneficiaries of pension from global institutions, understand that the retail trader in his fifties who is illiterate and who has borrowed at exorbi-

tant rates and who has to bribe on a daily basis does not have any future with this revolution. The pan-chewing, dhoti-clad, Englishignorant retail trader should not be seen as `inefficient and `cost ineffective who needs to be bleached by globallyaccepted detergents. What they need is a level playing field, in the full sense of the term, with access to affordable credit and the abolition of inspector raj in the form of harassment by the various arms of the Government. We are still a savings based, family-oriented economy. In a well-attended seminar a retail expert mentioned that the progress of India will be measured by the foot falls in the malls. There was applause. It shows that we have sold our civilisational soul for the cause of the wellheeled soles. Tomorrows headlines are going to be regarding suicide by retail traders and you have read it here first. The sooner we have a ministry of retail trade to protect, preserve and enhance the capabilities of our kirana stores - instead of encouraging FDI in retail by global brands - the better for the Indian economy.

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