Opinion Who’s afraid of retail reform?

Of course,there are potential downsides to opening up FDI — increases in productivity through the introduction of largescale businesses has resulted in some small stores,entrepreneurs and farmers going out of business where they were unable to adapt,as has happened in Brazil and Russia. However,the need to adapt is true in all markets,emerging and developed,and for all retailers,suppliers and farmers — large or small,foreign or local. It is worth noting that there are successful,small,local retailers in every market in the world,including mature Western markets.

The Indian government needs to draw from the positive examples of Thailand and Malaysia and other developed markets to alleviate the fears surrounding foreign investments in retail development. The lesson from these emerging markets suggests that in India too,successful implementation of retailing will require further regulatory intervention at local and state levels and the introduction of policies which encourage “competitiveness with inclusiveness”. In other words,regulators need not be caught between the conflicting goals of promoting trade competitiveness and economic efficiency on the one hand and defending the interests of small shopkeepers and kirana stores on the other.

Another lesson from the experience of other emerging markets is that retail development has occurred in multifarious ways in these countries. In Thailand,transformative regulations,as the name suggests,have dramatically transformed the economy and have been instrumental in making it a shopping destination. In Malaysia,FDI in retail has been more restrictive while trying to balance retail growth equitably across urban and semi-urban regions. The Indian government’s proposed decentralised retail FDI policy should highlight to the CMs of the respective states that they too can take different approaches to FDI entry — retailing as an agent of transformation of the state economy like in Thailand or an agent of restrictive yet balanced economic development like in Malaysia.

Finally,it is worth noting that retailing is fundamentally a decentralised activity. It is local customers that are served,local people that are employed in stores,local property,sales,and employee taxes that are paid,and so on. Many of the objections to FDI focus on largescale retailing and the associated investment rather than foreign retailers per se. But foreign retailing never works unless there is a local fit — which is why history suggests that foreign retailers will often fail rather than succeed. As long as there is effective retail competition and efficient retail distribution accessible to the majority of people,then retailing,including the products sold and the additional services offered,is dependent upon customer choice. In other words,retailing becomes a democratic process and not a dictatorship.

The focus of this retail debate needs to shift to how best can FDI in multi-brand retailing and accompanying regulations foster retail competitiveness while securing inclusion for the traditional retailers. Faced with a global economic slowdown,the political leaders,both at the national and state levels,must display leadership and foresight and enable investment- and employment-friendly conditions. It is time to put fears to rest and instead usher in a climate of hope and belief in India’s economic future.

Malobi Mukherjee is research fellow,Richard Cuthbertson is research director,Oxford Institute of Retail Management,at the University of Oxford’s Said Business School