DNA Edit: Big Bang Retail - Government should create a level-playing field

At the heart of the traders’ resistance to e-commerce tie-ups — the Walmart-Flipkart deal and the Amazon-More agreement — is their resistance to facing an uneven contest on the lines of David vs Goliath.

Disaggregated and unorganised retail shops — the former refers to small establishments with no chains and the latter are family enterprises — are up against multinational giants, which have the power to put such mom-and-pop stores out of business.

With their limited purchasing ability, the neighbourhood stores cannot buy goods in bulk and hence do not get the best price which they can pass as generous discounts to customers. Which a Walmart/Amazon is capable of. So while the consumer benefits, a giant retailer systematically destroys the local manufacturing and supply chain ecosystem.

In the process, a global retail creates a conduit for a global chain connecting various parts of the world. Europe had fallen prey to the irresistible charms of Amazon. It is Amazon’s largest overseas market. However, Walmart had lost the plot in Europe, Australia and India. This time, it is following the Amazon template and buying an e-commerce company Flipkart. The policy of allowing Foreign Direct Investment in retail is skewed towards big capital. At this point nearly 96 per cent of Indian retail is unorganised.

It is also one of the biggest contributors to the Indian economy in terms of revenue and pitches in with 15 per cent of the GDP. Also, in terms of offering employment, it is second only to agriculture. With big retail will come predatory behaviour and going by certain estimates, in the long run, it can render millions of people jobless if not handled properly.

More importantly, it will give rise to a culture of monopoly by killing small but numerous competition. At this point, Europe is cracking down on monopolies of tech giants and India is embracing big e-commerce retail to stifle a competitive spirit.

The government has to do a balancing act by protecting the interests of both the giants and the small players. Opening up markets to new players and breaking up cartels and monopolies is one of the few ways to boost economic growth.

However, the biggest challenge for small retail is pricing and brands like Amazon and Walmart work on pricing. Having said that, supporting small business actually benefits communities. There is a symbiotic relationship between residents and small business owners.

They need each other and hence support each other. Small business owners have an active and personal interest in the well-being of the community. But in the event of a price war, Walmart or Amazon, with its global sourcing network, storage infrastructure, and access to capital, will be able to bring down costs of consumer goods in India, and in the process, affect revenues of small traders. We stand at a juncture when it is not impossible to foresee the hollowing out of the Indian economy.

Over the years, the manufacturing sectors of some of the world’s leading economies, such as the US and Europe, have contracted significantly due to retail policy.