December 5, 2006, Thesynergyonline News Service
New Delhi, India

The retail sector continues to be in news. Though the government has decided to go slow on allowing FDI in the sector, big things are happening, whether it is Reliance making foray into this emerging area, or Bharti joining hands with Wal Mart.

In a press release issued here today, CUTS International, a leading research and advocacy group has asked the government to adopt a proper policy and regulatory framework for the retail sector, which can ensure that competition is embedded in the sector, for the benefit of both consumers and suppliers.

“Our studies across both rich and poor countries have shown that wherever big retail or supermarket chains operate, both the consumers and producers get the short end of the stick, in the absence of proper regulation”, says CUTS Secretary General, Pradeep S Mehta. CUTS works on competition and regulation issues around the world, through its multi-country projects and offices in London, Lusaka, Nairobi and Hanoi.

The moot point is that the sector is going to grow even if there are concerns about the small traders being adversely affected. However, it would not be prudent to stop growth of this sector just to protect small traders. Because this is the way things are going to move and should move in the long run. Though it is naïve to argue that the small traders will not be affected, the fear is often exaggerated.

Small traders have some advantages. Not only that they can be conveniently located, large section of our population cannot afford to visit the large stores. The large stores are good only for those who buy their household requirements on a weekly or even on a monthly basis. Unfortunately, many of our people do not have enough money to buy even for the next day!

“However, there has to be enough competition in the retail sector, not only to give a better deal to the consumers, but also, and probably more importantly, to protect the small and medium producers from the monopolistic anticompetitive practices of the giant retailers”, said Mehta.

Globally, it has been found that they undercut the producers even though the consumers smile. In India, the producers are not only the big companies but also small producers and farmers.

Going slow on retail FDI can be a good strategy to promote competition in the sector in the long run. Though the sector is growing, there are not too many large players and hence immediate opening to FDI might mean that the market will be dominated by a few giants. By giving some time to the domestic retailers to grow and then opening up for FDI will ensure a more competitive market in the long run.

In the short to medium term, it must be ensured by the competition authorities that these domestic retailers do not abuse their market power, in the long run, it would better to allow the foreign retailers rather than relying on competition enforcement.

Care, however, has to be taken that these domestic retailers are not taken over by the global giants whenever we decide to open the sector for FDI. Otherwise, competition will suffer as we have seen in the soft drinks sector where we are stuck with just two players. Unfortunately, they prefer to compete in TV, newspapers or even in court rooms rather than in the actual market place.

The crux of the issue is that promoting and maintaining long run competition should be the objective of the retail sector policy.