FT Syndication Service
MUMBAI: India's government has obviously never heard the maxim: "Don't put off until tomorrow what you can do today". The government routinely defers decisions by commissioning studies of thorny issues in the hope they will have blown over by the time a report is filed a year later.
Sometimes this tactic can have a boomerang effect. That is what happened with the publication this week of a long-awaited report about one of the most heated controversies to have dogged India's Congress party-led ruling coalition - whether to allow large corporations a free hand to expand in the retail sector.
The report could hardly have come at a more sensitive time for the centre-left United Progressive Alliance government. With an election due by early next year, the government is already struggling after losing a spate of state elections - most recently last weekend in Karnataka, whose capital is Bangalore, India's Silicon Valley.
The report by the respected Indian Council for Research on International Economic Relations was commissioned by Manmohan Singh, prime minister, last year to investigate the impact of "organised retail" - essentially big chain stores in the mould of Walmart or Tesco - on small shop owners, kiosks and street vendors.
The invasion of the high street by big retail is contentious anywhere but in most large countries is hardly the stuff of national politics. Yet in India it is one issue that galvanises the left like few others. The country's estimated 12m small shopowners comprise a powerful lobby group.
The debate is so emotional it regularly descends into violence, with stores of big retailers occasionally trashed by angry mobs. This has led some states to curtail severely or even to suspend all organised retailing - foreign and domestic. The issue goes to the heart of India's development dilemma: how far can it pursue market reforms without alienating the vested interests of the left? The UPA government, directed by Congress party leader Sonia Gandhi, relies for support in parliament on four main communist parties.
The retail industry in India is one of the least developed of any large country. According to the Icrier report, organised retailing accounted for only 4.0 per cent of the country's $322bn retail industry as of March last year. That compared with up to 85 per cent in developed countries, such as the US, and up to 36 per cent in emerging markets, such as Indonesia, Russia and Brazil. In China, the figure is 20 per cent.
Foreigners, accustomed to headlines about India's economic growth, are often surprised when they land in its big cities such as Mumbai. The glitzy malls that are the hallmark of prosperity in east Asian cities, such as Shanghai, are barely visible. Part of the reason is tight restrictions on foreign direct investment in organised retail. While "single-brand" retailers, such as luxury goods chains like Armani or Gucci, are allowed to set up shop, "multibrand" retailers, such as Tesco and Walmart, are barred from selling directly to consumers.
Foreign companies are lured to India by projections of rapid growth in the retail market. Icrier forecasts India's overall retail business will grow 13 per cent a year to nearly $600bn by 2012, with organised retail likely to grow at nearly four times this rate. The crux of the report is its argument that India's growing "consuming classes", which it estimated at 370m people, will be better served by allowing the growth of corporate retail. It called for the government to ease licensing procedures while protecting against predatory pricing by strengthening India's anti-monopoly watchdog, the competition commission.
The report surveyed small shopowners, big retailers, manufacturers and consumers across the country. It found that, although small shopowners suffered a fall in business when a big supermarket or mall opened nearby, the adverse impact lessened in time. In fact, only 1.7 per cent of small shopowners closed as a result of this direct competition. The rest adapted by improving business practices, for example extending credit, increasing home deliveries or becoming more efficient.
Consumers were the winners from corporate chains, with low-income earners saving as much as 10 per cent. Farmers also benefited - cauliflower growers earned as much as 25 per cent more from selling directly to corporate retailers.
The results were disputed by foes of organised retailing. India FDI Watch, an activist group, argued the survey did not include India's street vendors, such as vegetable sellers. It demanded a ban on corporations selling fresh produce and that 80 per cent of commercial space in cities be allocated to small shops, street vendors and hawkers. "The government must not allow our retail structure to be controlled by a handful of multinational corporations in association with Indian corporate partners," FDI Watch said.
Ultimately, consumers ought to have the last say. Why should they be held hostage to the narrow interests of a minority? As Roger Corbett, former chief executive of Woolworths in Australia, said during a Mumbai visit: "Why should the Indian people have inferior shopping?"
India FDI Watch and its allies have little to fear for the time being. The government has too much on its hands with the election, rising oil prices and inflation to tackle retail policy this year. Its response to Icrier's findings will probably be to commission another report on the report and hope the issue goes away again for another year.
