Pavement economics

The CPM8217;s latest proposals on regulating the retail sector at least bring the good news that the party is seized of the immense transformation taking place. It plans to circulate for discussion with other political parties and lobbying with the government, a document entitled, 8216;National Policy on Regulation of Organised Sector in Retail Trade8217;. The basic intent cannot be faulted. The party is against the creation of 8216;private monopoly8217; in retail. The problem is in the detail. To prevent private monopolies, it proposes a stringent licensing regime, whereby a minimum floor area is specified for retail outlets. It seeks measures against 8216;predatory pricing8217;, a concept that only the Competition Commission should be bothered about. The CPM also wants the public sector to ensure competition to private retailers.

This is such a muddled proposal that it demands the reiteration of first principles. There are enough practical examples to show that monopolies are best averted through competition. Monopolies are rare on a level playing field, whereby existing entrants can innovate their business models and whereby new entrants can keep them on their toes on account of their fleetfootedness. And unlike the impression conveyed in the tenor of the CPM document, prevention of monopolies is not an objective in and of itself. We need free enterprise, because it is only through the competition so encouraged that a balance is most reliably found between the interests of producer, retailer and consumer.

Among these three entities, the CPM8217;s proposal appears to privilege the small retailer. But would even the unorganised retailer be well-served by a licence regime? Consider the fact that the small retailer of fruit and vegetable has access to very meagre resources. In such a licence raj, for someone like him to upgrade in the retail trade from, say, a handcart to a small shop, would be next to impossible. Surely it cannot be the CPM8217;s case that 9 per cent-plus GDP growth should not gradually take the pavement hawker on to the shop floor.