Friday, December 2, 2011

FDI in Retail: Whose interests would it serve?

Twists in Indian Retail Trade:
In his inimitable style, Dr Debroy exposed the hollowness of the much touted latest reform agenda – the FDI in Retailin the edit piece of Economic Times on 2nd Dec 2011. The essence of it all is that the farmers, mostly the small, marginal, and the tenant farmers as also the Kirana retailers are bound to loose out. The loosing tenants are driven to suicides. The large farmers are out of farming mostly and settled in real estate or tourism or hospitality industry that is more remunerative but are not out of farms. They rented out to the smaller cousins. The APMC Act and its rules deserve all the blame. The Agriculture market Yards (AMY), most of which own high value assets and turn out good cess to the state governments invested too little in taking markets closer to agricultural production. They could have utilized the ICT to establish a well-endowed storage cum market yard. In the hinterland of the AMY, farmers could have been given a smart card as the first step. They could have set up the spot markets after constructing four-layered storage godowns: ground floor for seeds; second floor for fertilizers and other inputs for farming; third floor for outputs; and the last floor, cold storage connected through a conveyor belt system with all bins properly marked. The farmer who enters the market in such a system would have swiped the card at the entrance; unloaded his produce with laden weight of the produce recorded; sorted and graded the produce and at each of these points the weight and price duly recorded. If he were to arrive late during the day, he could just unload the produce and proceed to the dormitory on the first floor of the service building of AMY. The whole produce so delivered would get into the spot market when the farmer would receive 70-80 percent of the value of the produce so delivered after paying up the service charges on-line. This would eliminate the stranglehold of the kutcha adityars or the exploitative intermediaries. Such markets to be set up require INR 20-30crores and should not be difficult to be found. The farmer, irrespective of the size of his holding, would have gained. It is important in such situation to get rid of the CACP. The spot market can eventually be linked with the futures when real price discovery would have taken place to the advantage of the farmer. The food retail markets would have the prospect of sustainable gains and the consumer also would have had the distinct advantage of the direct purchase and sale. All said and done, the FDI Retail would have no more than ten percent of its space for the food products.