Big box retail will boost poverty

It is being projected as a false alarm. Congress president Sonia Gandhi’s latest letter to Prime Minister Manmohan Singh asking him not to hurry with the opening up of the retail sector to foreign direct investment (FDI) has not ruffled any feathers. Letter or no letter, the blitzkrieg of supermarkets and malls shows no sign of subsiding. Allaying any fears of a slowdown after Sonia Gandhi’s leaked letter to the media, Commerce Minister Kamal Nath put it straight: “The Prime Minister’s Office had asked for details on the FDI policy on retail and we have sent our comments, so what is the fuss about?”

Surely, he knows what the fuss is all about. At stake is the livelihood security of 12 million small shopkeepers, 40 million hawkers and at least 200 million (of the 600 million) small farmers, a small sacrifice to be made for ensuring success of the organised retail boom. Mrs Gandhi’s letter is apparently an expression of concern for the aam aadmi: “I have received suggestions from many quarters about the desirability to first study the possible impact of transnational supermarkets on livelihood security of those engaged in small-scale operations … I thought I would convey this to you so that you may consider having the relevant issues properly examined before further decisions are taken.” What she says makes economic sense, but for the PM, it is commerce that now takes precedence over economics.

We voters had always thought Manmohan Singh, being a professional economist, would back his positions with sound economic analysis and proof. But there is surely only disappointment on that front. “The entry of foreign enterprises into the retail trade will not hurt our small shopkeepers but will create lot more employment,” he has said time and again, but the international evidence is to the contrary. Organised retail occupies 92 per cent of the retail business in the United States, and 70 per cent in Britain. And this has come at a heavy social, economic and environmental cost, and big retailers have added to poverty.

We voters had always thought Manmohan Singh, being a professional economist, would back his positions with sound economic analysis and proof. But there is surely only disappointment on that front.

Meanwhile, all kinds of figures are being tossed out by the retail industry and its marketing consultants to justify the entry of organised retail. One estimate points to a potential growth of US $21.5 billion in organised retail by 2010; another pegs it at $30 billion. The Marketing and Retail Conclave organised by Technopak Advisors has taken this further, showing modern retail jumping from the existing US $12 billion to US $75 billion by 2011, and as much as US $175 billion by 2016. If wishes were horses, the marketing consultancy firms could certainly take millions of people for a ride.

Mrs Gandhi is evidently not impressed with these statistics, and rightly so, for they hide more than they reveal. She is asking for a detailed study before the government lays out a red carpet for ‘big box’ retail chains. Lessons need to be drawn from a recent study done by Stephen J Goetz and Hema Swaminathan of the Department of Agricultural Economics and Rural Sociology, at Pennsylvania State University in the United States. The authors measured the impact of Wal-Mart’s massive retail boom on poverty in various American states.

Entitled Wal-Mart and Poverty, the comprehensive 2004 study clearly brings out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up. “Equally important, the counties (districts) which built new Wal-Mart stores between 1987-1998 also had high poverty rates,” the report concludes. Interestingly, increased poverty growth from Wal-Mart operations comes at a time when poverty rates nationally were otherwise in decline.

Lest this be dismissed as mere coincidence, the study cites three major reasons for the growth in poverty in relation to the growth in Wal-Mart retail. First, poverty rates increased because workers displaced from small shops (known as ‘mom and pop stores’ in America) had no alternative. They were forced to work in Wal-Mart stores at relatively lower wages. Second, big box retail destroyed local entrepreneurship, thereby destroying the ability of local talent in many areas to earn an independent livelihood. And finally, say the researchers, Wal-Mart actually transfers income from taxpayers and welfare programmes to its stockholders and consumers. In other words, the retail giant is not bearing the full social and economic cost of its nation-wide operations.

All these three factors are much more relevant in the Indian context. In India, no scientific and economic analysis has been done to ascertain the ecological, economic and social costs the nation will have to pay, especially the loss in livelihoods of small retailers, hawkers and the farmers. Still worse, not even one empirical study from an independent institute examines the impact of organised retail on already poverty-stricken India.

If unfettered FDI in multi-brand retail further compounded the appalling poverty that already exists, the negative impact on small retailers and farmers would be acutely more damaging than what is being projected. If Mrs Gandhi means business, and expects her concerns to be taken seriously, she must ensure that livelihoods of millions - especially those in agriculture which is rapidly becoming restructured for organised retail - cannot be sacrificed for the sake of a few. At the same time there is an urgent need to bring in adequate legal provisions (as in Japan) to ensure that extensive public hearings and economic, traffic, environmental and other impact assessments are done before the government permits organised retail to set in.

Moreover, the UPA government should be directed not to follow the autonomous route to facilitate the expansion of the services sector; this would only provide an unwarranted escape clause for political leaders. It is well-known that under the General Agreement on Trade in Services (GATS) of the World Trade Organisation, retail giants are pushing for provisions that would be politically untenable in India, but may be passed of as ‘necessary’ under international agreements. In a 2002 letter, for example, Wal-Mart had asked US trade negotiators to pressure countries to remove “any size limitations on individual stores” and “geographic limitations on store locations.”

With the government appearing to bend over backwards to accommodate FDI in retail, Mrs Gandhi’s letter steers a different course. The question is, is this a smoke-screen?