Retail Sector and Inclusive Growth

It is universally agreed that the agriculture and manufacturing sectors must improve upon its contributions to the country’s GDP. Recently, Narayana Murthy, Chief Mentor of Infosys, speaking at a meeting organised jointly by All India Association of Industries and Young Entrepreneurs’ Society, said, ‘India could use low level of technology in the manufacturing sector to provide job opportunities to a large number of illiterate and semi- literate people in the country as in China.’

How can these low-tech manufacturing enterprises be created in large number? One way out can certainly be if the big business enterprises or MNCs go for procuring components for its plants spread over globally. It can happen if Indian manufacturers compete in cost and quality. Maruti Udyog has shown the way and assisted the setting up of many auto components manufacturers that are today globally competitive and are exporting to many countries now. It can happen in many other sectors too.

The big business houses such as ITC, Reliance, Birla, Tata, Bharati, and 20 others getting into retail sector can help low-tech manufacturing in a big way. The outlets will sell fruit and vegetables, staple foods, stationery, clothing, consumer electronics and other general merchandise. There is a big hope of surge in local manufacturing with entry of these big business houses as well as MNCs such as Wal-Mart in retail business. As Raj Jain, Wal-Mart India Chief said at the launch of the joint venture with Bharati, ‘Wal-Mart sources almost 90% products from local sources.’ China opened FDI in its retail sector. Today Wal-Mart sources $18-25 billion worth of their global requirements from China, it does only about $600 million from India. The joint venture of Wal-Mart with Bharati will certainly expand the Wal-Mart sourcing from India for its global outlets, if local entrepreneurs take initiatives to enter the global market with their products better in quality and price.

If all the big houses joining the bandwagon of retail business decide to develop local sources and assist them to develop and upgrade its products in technology, quality, and cost reduction, the country can have a big surge in manufacturing sector. It is very much possible for Indian manufacturers to compete any country if assisted in right way. I recently came across a story about some toy makers in India who are fighting out well with Chinese and with perhaps better quality. Similar success stories can come for many other commodities such as porcelain and crockery, furniture and fittings or other household accessories. If Wal-Mart declares to source 90% from India, why can’t India big business houses do that to a larger extent? Naturally, they will have to keep a brake on easy import of cheap items from China or other countries without exploring and encouraging the local manufacturers. If they follow this route, it will result in hug growth off low-tech manufacturing and a lot of employment generation.

Farmers will be the other beneficiaries. The retail sector promises to buy fruits, and vegetables directly from the farmers. It may even encourage and assist the farmers with some minimal investments for value additions removing all the middlemen. If the organized sector is serious to help farmers, it shall be paying a better price to the farmers for their produces improving their living standard. Main thrust of the organized sector must be to profit from improving the supply chain efficiency such as the transport cost, waste reduction (presently 35-40% of vegetables and fruits get wasted) through high-tech warehouses, air-conditioned transporting vehicles and better packaging, and self-life improvement through technology input. At least some reports such as one from Bharati’s Field Fresh enterprises in Punjab are very encouraging and raise hope for better days for Indian farmers collaborating with these big houses coming in retail. As reported, retail majors are seeking out direct tie-ups with farmers to source food produce for their outlets at better prices and are also willing to offer services like quality seeds and fertilisers to farmers. Many state governments have agreed for changing policies to allow contract farming to help farmers for getting a better price for their produce. The big business houses getting in retails must also try to come in big way in setting up food processing enterprises that can cut down the huge national waste and help farmers and fruit growers.

Organized retail accounts for only 3% today in India. With its growth, the closer relations of the sector with farmers will further grow. If we go by the industry’s estimate reports, by 2010 the organized business in India will grow to $23-$50 billion, as it is growing at a rate of 26-30% annually. And naturally, it may mean a good share for the local manufacturers as well as farmers, unless the people controlling the sector get unscrupulously greedy and forget about their promise of corporate social responsibilities.

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