Sunday, November 21, 2010

Opening Retail - The Multiplier Effect

Much had been spoken about the opening of the retail sector in India in the context of President Obama's recent visit of India.
There has been a lot of speculation on the opening of the sector and whether there has been a quid pro quo with the United States on doling out defence deals and broad agreements on geopolitical issues in return for India easing restrictions on entry of the so-called big retail.
I believe that is the case. Gradually, the controls will be eased, just as what happened in the insurance sector.
But opening of retail has been a political hot potato. The communists oppose it in the name of ideology while elements on the centre and right oppose it simply because the Marwaris and Banias form their support base and have always been a source of their funding. These communities have been in the trade for centuries.
Let's put it simply - there is a reluctance to challenge the present paradigm.
Big retail will seek to achieve economies of scale not only on the consumer end but also on the sourcing side. That would necessitate bulk sourcing which would also translate into some element of discounting for the end consumer.
In short, the consumer would benefit from the lower prices and also a wider range that the neighbourhood bania cannot offer.
Opening retail would bring with it a whole host of opportunities for the not so well educated youth. Organised retail will hire big time for logistics, sourcing, security and manning the stores. And the youth will have a grand opportunity to pick up some skills and who knows, some opportunities for entrepreneurship in the future.
Vendors will have an opportunity to directly sell to the retail chains bypassing middlemen.
Organised retail has to develop and evolve logistics solutions including cold chain solutions to ensure fresh produce reaches the markets. This would trigger the much n investments in logistics solutions, warehousing, transportation, repair and maintenance which would lead to entrepreneurship opportunities.
Clearly opening of retail has multiplier effects on the economy.
But does this mean that it would be the end of the road for small retail?
Certainly not!
Models of hub and spoke in retail trade, involving, say a Walmart and a network of neighbourhood retailers can be thought of. That way it is a win-win for all. Traditional retailers stay in business while Walmart increases its footprint.
In short, opening retail should not be a political hot potato. Instead, it would have multiplier effects on India's GDP, in the long term.

1 comment:

Sivakumar Surampudi said...

The challenge for the Government would be to lay a policy framework that proactively channels the investments to bring the desired benefits, rather than simply opening up and hoping for the best...

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