Stories on the corner

The retail sector in India is ripe for reform

Written by Yoginder K. Alagh | Published: February 23, 2009 10:58 pm

It is suggested that the Indian path of reform — slow and sure,avoiding political landmines,consolidating and pushing forward — is eminently sensible. There is a track record to back this statement. There is by now global recognition of India performing well for almost three decades,and a particularly outstanding performance in this decade.

To deny this would be peevish. There is however a distinction between going slow by design and doing so by forced compromise. The strategy laid down in the mid-’80s of first addressing domestic reform and then attempting global reform was an example of the first mindset. There are examples of the second. These may be policy steps ahead in their own right,but a more nuanced approach could have perhaps led to better dividends. Policy is not just grand advances but choosing between alternatives and pushing better ones. It is in this regard that we should consider FDI in retail.

It is interesting that the successful cases of globalisation of retail trade have been in the strategic mould. China was one such outstanding case. Franchising for local vendors,export outlets for local and artisan products,land use policies for location specific linkages of mom-and-pop stores and local rural markets as vendors were all experimented with. There were protests as job losses took place in the largely informal,extra-legal existing structure but these could presumably be internalised in a one-party state and the careful calibration of policy. In our case one is not even quite clear as to what is actually happening.

There have been interesting studies of the possible impact of globalisation of retail trade in India. The first thing to note is the point made by the Food and Agricultural Organisation’s paper on accelerating agricultural growth in India proving that market penetration in rural areas in India is far more than in other developing regions in Latin America,Africa and Asia. Reform would have a double-edged impact. Linkage of larger markets and innovation could trigger great growth possibilities. Ill-advised policies would lead to unimaginable losses of jobs running into millions as the Arjun Sengupta Commission brings out in its reports. Both ICRIER and before them the Ahmedabad-based Entrepreneurship Development Institute of India (EDI) have underlined the razor edge of the problematic. Both have strongly advocated strategic policies as a precursor and accompaniment to reform.

I had a policy brush with some interesting exercises the government of India did on an employment policy for India sponsored by the ILO. I argued for a calibrated approach to the question rather than either a Luddite or a swashbuckling view. Interestingly,both employer and trade union

interests were willing to bite. There was every likelihood,I suspect,of both being at each other’s throats when the policy was implemented but in the civilised confines of a discussion group they agreed,showing possibly the potential of a real consensus.

The outlines of the understanding arrived at after some bitter words was that at present there was an insufficient and perverse regulatory environment with strong losses of welfare,due to the police and municipal authorities harassing retail traders. There was really no policy to create social space for retail traders and vendors in urban areas. Quite to the contrary,a number of studies showed the corruption and tremendous social costs of existing land and estate practices. Oxford University studies on the corporatisation of urban space were noted. Some new examples like the Dharavi reform going back to Rajiv Gandhi’s promise to the slum dwellers were also noted. There was consensus to simplify licensing policies for shops and vendors and make them transparent. Land use must provide for well marked-out spaces for retail trade and informal sector vendors in “expensive” locations rather than legalising only the peripheral areas and leaving the rest to “hafta”. Strategic relationships must be developed between retail malls and informal sector vendors and mom-and-pop stores as in China,Singapore and Indonesia. There must be a policy to protect and encourage local artisans with historically inherited skills. There has to be a large training and skill development programme for the new systems. It was noted that both Coke and Reliance had themselves introduced such programmes in a big way. A lot is possible.

Unfortunately,policy is made by a bureaucracy without experience and developed in a hurry. The only macro-policy-maker we had who earned a living himself in a large organisation before he took on the joy stick of the country was Rajiv Gandhi.

The writer,a former Union

minister,is chairman,Institute of Rural Management,Anand

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