'The Government Should Help Smaller Retailers'

Dr Mathew Joseph headed, in 2008, an ICRIER team commissioned to draw up a report on the impact of organised retailing on the unorganised sector. The report became a political hot potato as it found that the impact on smaller retailers would mostly peter out. In a phone interview with Pragya Singh, Joseph, who now teaches at Rajagiri Centre for Business Studies, Ernakulam, says the controversies around the FDI debate killed the government's will to reform retail. 

What has changed since your study in Indian retail? You had found that organised business would not kill off Indian retailers.

I noticed over the years that each format in retail, organised or unorganised, has adopted requirements of location and customers. So, now, smaller outlets are replicating mom-and-pop convenience stores. Their attempt is to coming close to customers, say, using e-commerce and apps. 

How has policy changed in eight years and how has that shaped the retail market?

Retail policy is still very restricted and fragmented across states. We have not even done enough for organised retail to spread. It's true some states are more open to organised retail but as a whole I don't find the policy is that liberal. For example the organised sector, to expand, requires to build capacity to distribute goods at cheap prices, or economies of scale. They need a centralised distribution network and an all-India market. FDI is not happening and that is one reason for slow progress on all these aspects. The economy is not growing as fast today and discretionary spending is taking a hit. That's why retailers feel the need to work harder to retain customers, that's why they are adopting better technology. 

So would organised retail and FDI not have a detrimental impact?

Our study had also shown sectors would be impacted, but that impact would peter out over time. One reason for the petering out was adoption of technology by retailers, their modernization. This is what we are seeing happen, when you talk about kiranas fighting back. For the moment, retail FDI will not impact kiranas at all, because there are so many constraints on FDI. There is no forward movement on FDI, and so small retailers are not that threatened. 

What impacts the kirana business then? 

They face constraints in operations. As the economy picks up there is a chance that the government will reshape various policies, not just FDI. They need access to credit, bank's support, but the government is holding back. In particular municipal corporations don't encourage local markets. They do not offer small retailers enough shelter or warehousing facilities. 

Can big retail giants help kiranas with this?

No, the government will have to come to retail's rescue rather than larger retail. 

In you report you had suggested such grandfathering.

We had said that the larger retailer, say, a wholesaler or cash-and-carry player, who has relations with small retailers, should not develop a monopoly. This was to counter the ever-present risk that suppliers may succumb to a large player's dominance. There's always a chance that someone may cheat a small player when they are dominant. In that context, we had suggested a plan of action, which meant clear-cut rules of engagement for larger players with their smaller suppliers.

Your report was commissioned by the government but was anything ever implemented?

I think that the government has adopted the soft way of doing things. It has given more policy space to retailers rather than see its own role in their future and growth. Rather than trying to fine-tune retail policy, the government has held off. At least, they have not tweaked policy to the extent possible because of political considerations. That is not the best route to take. 

Why not? Retailers and suppliers say they were not giving a chance to modernize before talk of bringing in international players was stirred.

The government should help smaller retailers. This help begins with letting them settle in a decent place. Take Delhi. The Janak Puri market has been under redevelopment for I don't know how many years. Or INA; its redevelopment is also going nowhere. People need a proper place to conduct their business from, provided by the government on lease or sale or license. Municipal corporations need to do this proactively. Instead, they only see their role as breaking, demolitions and so on, of places where small players work from. 

So the competition to Indian small retail is from modern and organised players and not from foreign players or e-commerce?

Even the biggest retail players in the organised sector are making no profits, with exceptions perhaps, such as Reliance. Unless they reach economies of scale and a centralised distribution system is developed to bring prices down, it will be very difficult for big retail to turnaround. And then you know the APMC laws in almost all states don't allow direct procurement from farmers. In future, even if the economy grows faster, the large retailer will continue to be constrained unless reforms in VAT are undertaken along with developing a national market.

This web-exclusive interview does not appear in print magazine.