The scare-mongers have been proved wrong: the growth of big offline retailers and e-commerce giants over the last decade or so has not driven mom-and-pop shops all across India to the wall. There is, hence, no reason to believe that the mega deal between Flipkart and Walmart — the first, an e-commerce player that controls about 45 per cent of India’s e-commerce market, and the second a dominant offline retail giant that, however, has been at the fringes of the Indian scene with about 20 cash and carry stores — will alter this situation. India’s e-commerce market, at about $18 billion, amounts to about 2.5 per cent of the $650-billion retail economy. Organised offline retail as a whole accounts for 6-7 per cent of this large pie, despite their having been around for quite a while. Far from devouring the small players, they are struggling with large overheads as well as the average consumer’s abiding preference for kirana shops, particularly with respect to buying groceries. India’s retail sector accounts for 8 per cent of all employment, and contrary to fears, the livelihoods here certainly have not been disrupted over the last decade. In fact, e-commerce has emerged as an employment provider, an aspect conceded recently by the West Bengal government. As a response to corporate brick-and-mortar retail, neighbourhood retailers have scaled up and now provide stiff competition, besides employing a number of shop assistants. So far, India’s retail market, thanks to its sheer size and diversity, has allowed all variety of players to operate.
The trouble is that policy has not kept pace with this reality. It was only in January this year that India permitted 100 per cent foreign investment in single-brand retail, while relaxing the 30 per cent local sourcing rule for their Indian operations. Now, these entities can offset their 30 per cent requirement, if they do the same for their global operations. The absence of curbs on foreign single-brand retail may well have spurred an offline giants to create greenfield infrastructure rather than buy up stake in another company. This goes to show that ill-thought out regulations do not achieve the best outcomes. The Centre should consider relaxing curbs on multi-brand retail, and allow freer play of market forces seeking to enter India’s buzzing retail space.
Instead of being unduly fixated on ownership issues, regulations should focus on protecting consumers and producers. Laws and institutions should be wary of anti-competitive practices, such as predatory pricing. Local sourcing should be implemented in a reasonable way. The key is to strike the right balance between regulation and ensuring a congenial business climate. The Centre should adopt an integrated approach to promoting FDI in retail, warehousing and food-processing. This can transform the fortunes of millions of farmers and shield consumers from price volatility. For too long have reforms in the food marketing chain been held hostage to exaggerated fears, holding up greenfield investments
via Nothing to fear – Business Line