Mar 3rd 2011, 17:56 by S.C. | LONDON
IN THE weeks leading up to India's annual budget, a familiar scene plays out in the country's media. Financial pages and news channels are full of advice and wish lists from corporate executives, economists and the occasional "common man" on what they would like to see in the budget. This year was no different. But one sector in particular—global retailers such as Walmart and Tesco—had high hopes that the country would finally allow foreign investment into "multi brand retail stores" or supermarkets and department stores.
It is easy to see the attraction to the Indian market. The share of trade (inclusive of wholesale and retail in the organised and unorganised sectors) in the country's GDP is around 15%. Estimates put the retail industry's size at just $450m of which only a tiny fraction, 5%, is organised. But rapid economic growth in the past decade has increased the disposable income of the middle class. It is this urban consumer that the global chains are eyeing.
Opening up the retail space to foreign investment would help in overhauling the country's antiquated supply chain. Shortcomings in the distribution systems have created huge differences between wholesale and retail prices. Inefficiencies are common. The government estimates that 40% of the fruit and vegetable production in country is lost due to inadequate storage and transport infrastructure. Waste of this magnitude, troubling in the best of times, is appalling as the country battles double-digit inflation.
Yet, despite a consensus among policymakers that opening up of the retail sector to foreign investment has benefits both in the near and long term, the government shied away from reaching a decision. The reason behind the hesitation is the political clout of existing traders. An estimated 35m people or 7.3% of India’s workforce, are employed in the unorganised retail sector. The traders have been very vocal about their opposition to any form of organised retail and have regularly conducted mass protests and ransacked supermarkets to make their sentiments known. They fear that the arrival of big-box retailers will price the corner grocery stores out of business. There is some truth to this. As this article notes, the advent of an organised retailer can lead to reduced sales in the first year. But after a few years the stores are more or less back to where they started.
Any decision that affects such a large workforce needs to be taken carefully. But the government has been mulling this question for over four years now. During this time the Indian economy has been denied the gains that result from increased competition and improved efficiencies in the supply chain. Holding hundreds of millions of consumers hostage to the fears of one group, however loud, is not a viable solution.
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Oh, come now. Is there no expertise in logistics currently deployed on the subcontinent ? IS there no UPS, no FedEx, who might take up the distributional challenge ? Or are those functions also squelched by the License Raj ??
Open up to walmart and then what? Walmart brings in goods manufactured in China under aegis of WTO. Indian industry, not supported by cheap state credit and artificially low currency, fails. People are left jobless. Thus people who were supposed to benefit from Walmart coming in are actually worse off. Only Walmart bosses profit. We have seen this happen in the US. No need for it to happen in India.