Why the BJP has got its 'jobs' argument so wrong

The opposition has begun - again. On 3 August, the opposition Bharatiya Janata Party began its campaign to oppose a government proposal to allow foreign direct investment (FDI) of up to 51 percent in the retail sector by multi-brand companies. This time, employment was at the centre of a short debate in the Rajya Sabha.

“There is pressure from the US on the government to open the retail sector,” said BJP leader Yashwant Sinha.

" Our objective is to ensure supply chains which have been in place for centuries, consisting of a large number of small traders and intermediaries, should not be disrupted. About 40 percent of total industrial production comes from small and micro industries. They need to be nurtured. Monopolies like Wal-Mart could drive small entities out. We are clear that FDI in retail will not bring inflation down, he said “.

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In addition, the former finance minister also sought information on how many jobs would be created if the retail sector was liberalised.

In the recent past, the government, including the Reserve Bank of India, has said that increased FDI in the retail sector would help in lowering inflation, which is currently running at 9-10 percent.

That is a hotly debated argument.Nevertheless, the fact is almost every year, we face the pressure of food inflation (although this year, prices have fallen in recent months). Apart from recurring food supply problems from a poor monsoon, up to 40 percent of the fresh fruits and vegetables produced are wasted every year because of a lack of proper storage facilities. About 10 percent of the milk produced is lost every year as well.

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The Indian cold storage industry, despite being in existence for about 50 years, is still in a very nascent stage of development. At the moment, nothing much is being done to change the situation. There can be no argument that investment is sorely needed, at least to plug the gap of such appalling food wastages given high prices. At the very least, the portion of inflation being caused by such wastages can reduce.

The proposal before the Cabinet to increase FDI limits for foreigners in retail has an accompanying set of conditions, one of which is that companies must allocate 50 percent of their investments to supply chain development. How can such investments be bad?

Now on to the jobs argument. The fear is that perhaps enough jobs will not be created by multinational companies after the sector is opened. Or maybe they will displace employment in traditional retail outlets. That’s a tepid argument: to be honest, how many young educated Indians today are likely to work in small shops? The argument should be to create more agro-processing and agro-based industries, which can take care of employment in the agricultural sector. At the moment, the agricultural sector’s low productivity isn’t creating many jobs. So to claim that there should be no disruptions to supply chains that have existed “for centuries” is well, weak, and not compelling in the least.

Planning Commission Deputy chairman Montek Singh Ahluwalia also had an interesting point to make earlierthis year: “If the economy grows by over 9 percent the size of the retail sector would be doubled in seven years. People in India are looking for jobs in the organised retail sector, and not in Kirana (traditional) shops.”

Even attracting young people to work in the agricultural sector, in the state that it is today, will be a challenge.

A recent retail sector report by Citi said that growth in the organised retail sector - accounting for about 10 percent of India’s total retail sector - has been much faster than the unorganised sector.

However, a shortage of retail space, a steep rise in rents at premium locations, problems with inventory and goods management have emerged as the main concerns for organised retailers. Foreign investments/partnerships could help them recover financially and aid their expansion plans.

In the next 18 months, the Future Group plans to open 250-300 stores, Aditya Birla’s More and Reliance Retail are looking at more hypermarkets and 150 stores each. By 2013, Spencers wants to add 1 million square feet ofretailingspace to the chain.

Finally, the “small shopkeepers will get wiped out” argument. Well, the best argument to that is maybe we should let Indian consumers decide for themselves.

If consumers indeed do like the Wal-Mart way of life, maybe it is time for Indian retailers to adapt themselves to that trend. Every sector undergoes changes from time to time; practically no consumer-oriented sector in the country has been able to avoid it. Indeed, in the consumer goods industry itself, we have Nestle and Unilever co-existing side-by-side with Dabur, Marico and plenty of competitors in the unorganised sector. No one has really complained that foreign presence has ruined the lives of local companies.

In addition, some analysts believe that the $450 billion plus Indian retail market will have room for growth for all kinds of sellers, from local shops to hypermarkets.

And, if as some critics argue, Indians will not embrace large multi-brand retail stores quite so easily as in the West, well, then opening the sector to foreigners shouldn’t be such a big deal, should it?