Why the retail revolution is meeting its nemesis

A while back, the retail revolution was the flavour of the season. Experts suddenly said my neighbourhood kirana store was ‘unorganised’. It is a form of terminological terrorism employed by the experts embedded with colonial gene. Once my local shopkeeper is classified unorganised, it implies he should be replaced by ‘organised’ retail, which has large ‘footfalls’.  My local kirana began to be called ‘mom and pop’ store, because that’s what they’re known as in Louisiana or Alaska!

What it is...
The retail revolution has three components. Realty sharks will occupy prime land and in some cases evict retailers and construct malls. This will be a great movement forward in our economic progress! Moving the retail store into households is another major part of the revolution. If the stock is in a shop, it’s inventory. If it’s in homes, it’s consumption. The third aspect is the razzle-dazzle of buying things that you’re not going to use. Consumption-driven society or shop till you drop.

Why trade counts
The table shows that trade (wholesale and retail) is one of the largest segments of our economy. It is next only to agriculture and has a share higher than manufacturing. With a GDP of Rs 25 lakh crore for 2006-2007 (at 1999-2000 prices), we find the share of trade is 15% — nearly Rs 4 lakh crore. It is the juiciest aspect of our economy, growing at a compounded annual real growth rate of over 8%. Even assuming a conservative estimate of 25% margin on this value addition, we get a figure of Rs 1 lakh crore, which will make any domestic or global player salivate over the projected income statement.

How many are involved?
The figures provided by the government in the Economic Survey say that in 2005, 3.75 lakh people were employed in the private sector in wholesale and retail trade. According to the survey, it was 3.6 lakh in 2003 and has declined to 3.51 lakh in 2004. Census 2001 provides more elaborate data. It says that 269 lakh are main workers and 24 lakh are marginal workers in wholesale and retail trade. It implies that nearly 3 crore people are dependent 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 non-matriculates. So the livelihood of over 30 million depends on trade. Add the number of their dependants and the figure could be as high as 120 million.

The failed footfall revolution
Subhiksha is closing down and other revolutionaries are doing a rethink. The Birlas, Ambanis and Tatas are all reworking their models. Experts who hailed youth not ‘afraid to spend’ and the middle-class that wanted ‘air-conditioned space’ have suddenly disappeared. When I can get a loaf of bread delivered to my home even at 10 pm from the nearby mom and pop store, why would I patronise malls where I have to struggle to park my car?

Plus in my small apartment, I cannot relocate the mom and pop store to please  some expert model builders in the US universities and their cohorts in Mumbai! I don’t even have to visit my mom and pop shops — I can use the cellphone, a facility unknown when the retail revolution started in the US in the 1960s.

Supply chain, credit issues
The main issue for our retail sector is supply chain.  Their ability to get goods at reasonable prices from farmers and transport them efficiently to their stores is a major issue. Plus the issue of credit from banking channels. The credit requirement of this sector is at least Rs 4 lakh crore since most capital in trade is working capital, but not more than Rs 1 lakh crore comes from institutional credit.

A major portion of trade financing is done by non-institutional players like moneylenders. The planners should address this issue rather than encourage the retail revolution. Harassment from various minions of the state machinery  such as police, municipal authorities, check post officials, labour department, weights and measurements etc (the list extends to at least 20 agencies) and the bribe tax paid is mind boggling. At a conservative estimate of 5%, we find that at least Rs 20,000 crore is the bribe extorted by various government agencies and regulators. Street-side vendors and hawkers have additional issue of zoning problems. The fact that they play an important role in the economy and have substantial entrepreneurship is neither recognised nor appreciated by the metropolitan elite. The pressure on the illiterate retail trader is huge.
He borrows at atrocious rates to repay his dues and in the absence of any social security net, faces severe hardships. The government has been talking of improving the living standards of SC/STs, OBCs and Muslims. It is interesting to note that substantial portions of Muslims, who are into business, are in the retail trade.

What can be done
The government should enhance credit availability through institutional channels by fixing targets, if needed. It should facilitate modernisation of spot markets like APMC and encourage linking up retail using technology to get the 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 ministry 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, who is in his 50s, illiterate and has borrowed at exorbitant rates and has to bribe on a daily basis, doesn’t have a future with this revolution.

In a retail seminar, an expert mentioned that the progress of India will be measured by the ‘footfalls’ in malls. There was applause. It shows that we have sold our civilisational souls to the well-heeled. Footfall culture is like pub culture — both are oxymoron.

Fortunately, the retail revolution is meeting its nemesis not due to any efforts by mom-and-pop shops, but by the innate logic of our civilisational ethos, which is more rational than the models by the retail revolutionaries, who are sharks and want our economic development to be measured by footfalls. Thank you we are back to mata-pita shops.

The writer is professor of finance and control, Indian Institute of Management — Bangalore, and can be reached at vaidya@iimb.ernet.in.

Views are personal.