Gallows for the Retailer

7/30/2019 Gallows for the Retailer

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*R Vaidyanathan is Professor of Finance and Control, Indian Institute of Management,

Bangalore.

annual real growth rate [CAGR] of

more than 9 percent. Even assuming a

conservative estimate of twenty percent

margin on this value addition we get a

figure of nearly Rs. 2 lakh crore which

will make any domestic or global player

to salivate on the projected income

statement.

We have provided in Table-1 some

salient aspects of trade which indicate

its importance and phenomenal growth.

We find from Table 1 that more than

16 percent is the share of trade in NDP

during 2008-09 at constant prices [which

is higher than manufacturing and even

agriculture] and it is growing at more

than 9 percent. Hence the interest ofglobal players to enter retail trade.

How Many Will Be Marginalized?

Unfortunately, we do not have exact

numbers regarding the number of fami-

lies or individuals employed by our

trade sector.

The figures provided by the

Government in the Economic Survey is

laughable since it mentions believe

methat 3.51 lakh persons were

Gallows for the Retailer

R Vaidyanathan*

The talk of the time is retail rev-

olution. It is a revolution which is

applauded by the planners,

encouraged by the Government

and eagerly talked about by the

experts. One group of experts

feels that without FDI the revolu-

tion may not even be of global

standards. That is, opening up the

country to global and domestic

sharks Another mega scam in the

making? Twelve crores of people

are going to be directly impacted

due to the so-called retail revolu-

tion. It is noose for the traders!

Trade, wholesale and retail, con-

stitutes one of the largest seg-

ments of our economy. It is next

only to agriculture and has as much

share as that of manufacturing. With a

GDP of nearly Rs 60 lakh crore for the

last year we find that the share of trade

at 16 % is nearly 10 lakh crores at cur-

rent prices. It is the juiciest aspect of

our economy growing at a compounded

R Vaidyanathan_blb:A Surya Prakash_blb.qxd 12/27/2010 12:10 PM Page 68


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Retail Revolution

employed during 2004 in the private

sector in the whole sale trade and retail

trade in the whole country. According to

the same data it was 3.60 lakh during

the year 2003 and it declined to 3.51

lakh in 2004. In one suburb of Mumbai

itself it could cross one lakh. It is inter-

esting that no Member of Parliament

has moved any privilege motion in the

last so many years for such fiction given

in the name of data to Parliament.

A 2003 State-wise survey by

Ministry of Labour suggests that there

are more than 45 lakh shops employing

more than 30 lakh persons. Then thereare nearly 9 lakh commercial establish-

ments employing nearly 32 lakh per-

sons. Including restaurants it suggests

that there are nearly 70 lakh persons in

all earning their livelihood from these

activities. We think it is an under esti-

mate since it does not fully cover all

states and UTs and also owner running

establishments wherein the employee

is also owner.

The Census 2001 provides more elab-

orate data. It says that 269 lakhs are

main workers and 24 lakhs are marginal

workers in wholesale and retail trade. It

imply that nearly 3 crore are dependant

on it. There are 1.1 crore in urban areas

and 1.9 crore in rural areas. Of the total,

nearly 1.7 crore are less than matricula-

tion educated. Hence the livelihood of

more than 30 million are involved andbased on dependants in the form of chil-

dren and others we can say that at least

120 million that is 12 crore are going to

be directly impacted due to the so-

called retail revolution.

Table-1

Share of the Three Major Sectors in NDP and Growth Rates

[At constant prices] [Rs. Crore]

Categories 2004-05 2008-09 Growth Rate

Agriculture and

allied activities

517651

[19.6]

595017

[16.1] 3.54

Manufacturing

354196

[13.4]

501641

[13.6] 9.09

Trade

424848

[16]

608971

[16.5] 9.42

Total NDP [including

other Activities] 2646370 3688991 6.48Note: The NDP is at factor cost and at constant 2004-05 prices. Growth Rates are Compounded

Annual Growth Rates [CAGR} at constant 2004-05 prices during the period computed from NAS

2010. Figures in bracket represent the share of the category to total NDP.

Source:National Accounts Statistics [NAS] Central Statistical Organization [CSO], New Delhi.



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Eternal India, January 2011

What Is the Retail Revolution?

It has three major components. The

real estate sharks will occupy prime

land and in some cases evict the

retailers and construct major malls. This

will be a tremendous blow to the small

and medium retail shops. The house-

holds are expected to create a retail shop

inside their homes and store litres of

colas and bundles of toilet paper.

Moving the retail store into individualhouseholds is the major revolution. The

third aspect is the razzle-dazzle of

chilling it off in

cool atmosphere

and buying things

which are not even

remotely going to

be used or useful.

The argument given is with respect to

improvements in technology and intro-

duction of software. As if a computer

generated unreadable bill is the panacea

for all our problems when the local shop

keeper can multiply and add in a jiffy.

It is also suggested that these new

malls will be open longer hours. This

argument may be useful in the West

where they close shops for Sundays and

also close early. Here the local retailer

keeps it open using his family labour

for more than 16 hours per day and all

days. The kirana shop adjacent to my

home opens at 7 am and closes at 10 pm

every day for 365 days of the year. He

is very efficient, has home delivery

system based on a mobile call and

knows tastes and price considerations

of our family. But he is called unorga-

nized by our experts and NationalIncome data and made to feel guilty.

The footfall in his shop cannot be meas-

ured using

Western models

[since there is no

place to keep any-

bodys foot inside

his shop] and so he is derided and

abused. It is like clubbing housewives

along with prostitutes in our census

data to show them that they are

involved in unproductive activities.

These are economic constructs imposed

by the West on the rest and it is a form

of terminological terrorism which is

mouthed ad-nauseam by our econo-

mists and policy planners without

understanding the implications.

When the President does it, that means that it is not illegal. Richard Nixon

Man is the only creature that consumes without producing. George Orwell

The real estate sharks will occupyprime land and in some cases evict the

retailers and construct major malls.This will be a tremendous blow to the

small and medium retail shops.



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The Weak Are Marginalized

The retail trade suffers from two

major issues. One is the non-availability

of credit at reasonable rates from insti-

tutions and another is the bribe given to

extortionist Government babus and their

minions. Nagamma has been a flower

vendor for more than twenty years in

my suburb of Bangalore. Several times

she joined informal chits to save some

money and generate loans during need.Many times the persons who ran the chit

ran away. As a finance professor, I

thought I should do some good in the

world of practical finance and advised

her to open an

account with a

commercial bank

for saving her hard

earned money and

perhaps get a loan

later. The branch manager who is a

pleasant lady knows the flower vendor

for many years but the Core Banking

Solutions [CBS] with its Central Server

located at Davos or Basle will just not

recognize Nagammas. System decides

about accepting new customers under

the Know Your Customer [KYC]

norms using Multi-Factor Discriminant

Model of Non-linear Credit Rating. She

was asked photos, proof of address, pan

number, proof of date of birth, her dogs

surname; references and also given

exotic choices of using debit card and

net based banking. Of course, someone

suggested about no-frill banking for

which forms are getting organized to

generate more thrills. Large corporates

discuss about base rates. But my flower

girl and my vegetable vendor get it at

half percent per day. [Returning half

rupee for hundred rupees borrowed in

the morning]. This will work out to be

more than 180 percent per annum. My

retail provision stores man gets it in aninteresting way. He gets Rs 45,000 [for

a loan amount of Rs. 50,000] up front

and pays Rs. 500 per day for 100 days to

repay Rs. 50,000. It turns out to be more

than ten percent

for three months.

More than 70 per-

cent of working

capital require-

ments of retail

trade in 2009-2010 have come from

non-bank sources.

The other perennial problem faced by

the unorganized retail trade is the

organized dacoity undertaken by the

minions of the State. They need to bribe

the cops, bribe the municipal authorities

and other local goons who are out-

sourced arm of the extortionist State. It

can be as high as Rs 20 on an income of

Rs200 or so per day. That is 10 percent

of gross income. The same is true of

fruit seller to fast food idli joint to

beauty parlour to chemist shop.


The retail trade suffers from twomajor issues. One is the non-avail-ability of credit at reasonable ratesfrom institutions and another is the

bribe given to extortionistGovernment babus and their minions.



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Retail Revolution

Instead of looking at these two impor-

tant constraints imposed on the

growing productive, efficient, and

effective retail trade our planners want

to open it up to global sharks in the

name of liberalization. It is interesting

to observe that already large portions of

the credit requirement of the retail trade

are not met by banking channels. The

credit requirement of this sector would

be at least Rs 6 lakh crore [60 percent ofthe value addition of Rs 10 lakh crore

this year] since most capital in trade is

working capital

and not more than

30 percent comes

from institutional

credit. Substantial portion of retail

trade is done by partnership /proprietor-

ship firms or self employed persons all

of which are categorized as households

for savings and credit data in our

economy. Major portion of financing of

trade is done by non-institutional

players like money lenders. We observe

that the share of house-hold sector in

outstanding bank credit has come down

to 47% from 58% between 1990 and

2004 [See table 13- Increasing

Concentration of Banking Operations-

EPW Research Foundation, March 18-

2006; EPW, Mumbai] during which the

household sector in trade, transport,

construction, restaurants, and other

business services has been growing at

more than 8% CAGR. Here, households

include agricultural households and to

that extent the fall is very significant.

We find that 43 percent of debt of rural

house-holds is from moneylenders and

25 percent in the case of urban house-holds. [Computed by us from

Household Indebtedness in India;

Statement 6; page

25; NSS

Ministry of

Statistics and

Programme ImplementationGOI

New Delhi; December 2005.] Hence

we need to recognize the importance of

the entire spectrum of non-bank sector

rather than in a segmented fashion.

The planners should address this issue

rather than wanting to invite major real

estate agents to enter into retail trade.

The harassment from various minions

of the state machinery - as earlier men-

tioned - like police, municipal authori-

ties, check post officials, labour depart-

ment, weights and measurements etc.[

If I have seen further it is by standing on the shoulders of giants. Isaac Newton

All animals are equal but some animals are more equal than others.George Orwell

It is interesting to observe that alreadylarge portions of the credit

requirement of the retail trade are notmet by banking channels.



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the list extend to at least 50 agencies]

and the bribe tax paid is mind boggling.

At a conservative estimate of five per-

cent we find that at least Rs 50,000

crore is the bribe received by various

government extortionists called public

servants. The street side vendors and

hawkers have additional issue of zoning

problems since the fact that they play a

very important economic function and

have substantial entrepreneurship is nei-ther recognized nor appreciated by the

metropolitan elite.

The pressure on the illiterate retail

trader will be very large. He will borrow

at much more

atrocious rates to

repay his past

burden and in the

absence of any

social security net will resort to suicide.

The Government, including the PM, has

been talking of improving the living

standards of SC/ST and OBCs and

Muslims. It is pertinent to note that sub-

stantial portions of Muslims who are

into business are in retail trade. In a

sense one part of Government does not

seem to know what the other part is

doing. The impact on the community

will be phenomenal. Also, large number

of retail traders is in their forties and

fifties and the issue of getting re-trained

to move on to other avocations will be

impossible. It is interesting to notice

that significant players in the retail rev-

olution are linked to real estate business

and it tells the inside story of another

mega scam much larger than the SEZ

in the making.

The global chains like Wall Mart have

not succeeded in Germany or Japan but

in Mexico since the former two coun-

tries have well developed regulations

and local competition to protect com-

munity based local shops. In developingcountries with weak ownership records

the real estate sharks will lead the retail

revolution.

For anything and everything the

p o l i c y - m a k e r

wants Indians to

emulate the

Japanese, the

French, the

Germans or the South Koreans. All

petroleum services and products, rice,

tobacco, salt, alcoholic beverages and

fresh food traded at public markets are

excluded in Japan from any distribu-

tional aspect by companies of other

countries. Australia, Japan, South Korea

do not allow trade services in petro-

leum, its products, rice, tobacco, salt,

milk, fertilizers etc by foreign compa-

nies. French using their Loi Royer

simply restrict any development of

hyper-markets to protect what they call

the centres of French towns and vil-

lages and the living of small shop-


The global chains like Wall Mart havenot succeeded in Germany or Japanbut in Mexico since the former twohave well developed regulations to

protect community based local shops.



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Retail Revolution

keepers. Germany has legislative con-

straints on outlets above 1200 sq.m.

This is despite trade constituting a rela-

tively small portion of their economy

both in terms of employment and value

addition compared to India.

What Is To Be Done?

The Government should enhance

credit availability through institutional

channels by fixing targets, if needed. Itshould facilitate modernization of spot

markets like APMC and encourage

linking up retail using mobile etc tech-

nology to get power of large purchases.

The zoning system should be introduced

to facilitate the livelihood of hawkers

and other petty traders. A percentage of

bribe tax should be impounded or

Government employees in identifiable

areas should be levied a cess to create

Social Security for retail traders. A min-

istry to exclusively take care of

domestic trade should be formed. Last

but not the least, let the reformers, many

of whom are beneficiaries of pension

from global institutions, understand that

the retail trader in his fifties who is illit-

erate and who has borrowed at exorbi-

tant rates and who has to bribe on a

daily basis does not have any future

with this revolution.

The pan-chewing, dhoti-clad, English-

ignorant retail trader should not be seen

as `inefficient and `cost ineffective who

needs to be bleached by globally-

accepted detergents. What they need is a

level playing field, in the full sense of the

term, with access to affordable credit and

the abolition of inspector raj in the formof harassment by the various arms of the

Government. We are still a savings

based, family-oriented economy.

In a well-attended seminar a retail

expert mentioned that the progress of

India will be measured by the foot

falls in the malls. There was applause.

It shows that we have sold our civilisa-

tional soul for the cause of the well-

heeled soles. Tomorrows headlines

are going to be regarding suicide by

retail traders and you have read it here

first. The sooner we have a ministry of

retail trade to protect, preserve and

enhance the capabilities of our kirana

stores - instead of encouraging FDI in

retail by global brands - the better for

the Indian economy.


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Gallows for the Retailer