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Is the campaign against retailers justified?

By Business Standard
October 05, 2007 09:14 IST
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A sector that was to have created millions of new jobs in the country is reporting job losses before it even gets under way. Organised retail is still in its infancy - less than 4 per cent of the total shop space is accounted for by organised sector retailers.

But what began as a protest against international chains coming into the country (the initial targets were Metro and Wal-Mart, though even Kentucky Fried Chicken outlets were subjected to attack), and which targeted the government's policy on foreign investment, has metamorphosed now into opposition to organised retailing itself.

The result is a variant of the old argument that small-scale industry needs protection, and therefore that large industry should be kept out of dozens of industries.

The "reservation" argument with respect to industry stands discredited and the government is eliminating such reservation in stages. It would be a pity if policy were now to create such artificial and indeed counter-productive distinctions when it comes to retailing.

The political wind certainly seems to be blowing that way. Reliance Retail has been forced to sack 400 employees (half its workforce) in West Bengal, because it failed to start operations following stiff opposition from political parties and local traders.

Over 300 more employees are expected to get the pink slip, and it appears that Reliance Retail's Rs 2,000-crore (Rs 20 billion) investment plan in West Bengal is in jeopardy. In Uttar Pradesh, Reliance Retail has sacked 870 employees and scrapped its expansion plans there, after its stores were ransacked by an agitating group of grocers and the state government ordered closure.

The company's plans in Orissa are also in doubt as there have been reports of protests against its first retail store in Bhubaneswar. Madhya Pradesh too has seen small grocers and traders joining hands with political parties to oppose big retail. The Kerala government has already made known its dislike for organised retail chains.

Large business houses and new entrepreneurs have entered the sector because they see opportunity to extract surpluses by achieving better supply chain efficiency, which will benefit both producers and consumers.

The people who feel threatened by this are today's traders, who themselves could benefit by sourcing supplies from cash and carry operators. Some might choose to portray this as many small Davids pitted against a giant Goliath, but there are other ways of looking at it.

It is odd, for instance, that political parties and state governments should make common cause with traders and ignore the interests of the far more numerous producers and consumers - indeed, farmers in UP had come out in favour of the store chains being opened, and consumers have definitely benefited from lower prices.

Small traders have already begun adjusting their prices, reducing them to match the new competition. All these developments are good for the economy.

The agitating grocers have singled out Reliance Retail among the domestic chains, even as other big retail chains have had a smooth ride so far in UP.

Subhiksha, a Chennai-headquartered chain of supermarkets and pharmacy stores, has opened 60 outlets in UP and plans to double that number in the next few months.

Big Bazaar, another retail chain, has opened six stories and plans to open four more. Civil society activists argue that they are targeting the big boys as a matter of tactics, but this does give rise to the suspicion of corporate rivalry also being at work.

What defies understanding is why the state administration has abdicated its own responsibility to give protection to those who want to do business.

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