Repercussions on trade and agricultural sector
ON 22nd of the last month, a very significant form of protest was registered by the trading and business community of Jammu division. The protest was observed against the proposed plan of upcoming retail outlets in Jammu by India’s biggest retail chain — Reliance Retail. Although the giant corporate entity brushed away the news as untrue, a wide range of authentic sources did show that Reliance has been working on an aggressive plan of setting up 100 odd retail grocery stores in Jammu division and 7 in Kashmir Division. Those against the plan saw this move as a lethal blow to the wide unorganized retail sector operating in the region. They fear that the sheer size of the economies of scale and supply chain efficiency in retail available with Reliance, can unleash a tangible and immediate risk of making lakhs of small shopkeepers totally irrelevant. Those favoring the decision say that it can create a lot of employment along with incomes for commercial real estate owners. From a consumption point of view, they anticipate efficiencies in end-prices and easy availability of commodities for consumers. They also see formalization of agrarian supply-chains in the region as an added benefit.
Before embarking on the pros and cons of corporatization of retail in Jammu and Kashmir, it is essential to understand the underlying drivers of the region’s economy and whether these dynamics suit the proposed changes as envisaged under the new economic reality.
J&K is primarily an agrarian economy with consumption driven structure. When we talk of supply chain, we see the majority of businesses in this region playing at either the extreme north or the extreme south end of it i.e most of us are either into farming or farm related businesses or as shopkeepers providing support to the last leg of the supply chain. All the fun of skimming margins is in-between, which unfortunately, in case of J&K remains the weak zone. To put things into perspective, among a total labor force of 44 lakh in J&K, the trading and retail sector provides employment to over 10 Lakh people. This shows the systemic importance of this sector. Its employment soaking capacity is second to agriculture. Now, imagine the lethality of something which has the potential to directly disrupt both these systemically important labor-intensive sectors of the region.
A wide range of research done by reputed institutions across the world have proved it time and again that the entry of corporate entities into retail space creates an immediate drop in profitability of existing small businesses in the region. It leads to a shake-out resulting in a majority of small retail outlets winding up operations due to their shallow loss bearing capacities, inability to contain market share, drying up of supplies due to monopolistic buying by retail giants and other economies of scale. With deep pocketed retail entities in the arena, the sales impact on small shops gets intensified and earnings keep falling till all these micro-accumulators become micro-subsistence seekers.
What about the new employment opportunities that will be created by the corporate retail entity?
There is an old (June’07) but very relevant research piece published by the “Economic & Political Weekly” titled, “Impact of Malls on small shops and Hawkers”. As per the report, which was based on data around malls in Mumbai, the number of jobs created by the corporate entities is barely 10% of the number of jobs that are lost with its emergence. Essentially, the kind of jobs created by the organized retail chains have certain entry barriers like minimum qualifications etc. Rehabilitating the entire labor force who lost their livelihood and are barely literate, into this new framework can result in even more pain. Although, we are not talking about malls here, however, the underlying dynamics which can be disrupted by the corporatized retail entity will have somewhat similar repercussions as well.
What about formalization of the agrarian supply chain?
Well, luckily, we have bundles of case studies from the developed world where it has been proven with hard facts that the condition of farmers, when exposed to monopolistic buyers, gets more miserable. When they lose the choice of trading with multiple small entities, they lose the ability to maneuver the markets with a fair degree of freedom. This leads to surrendering the pricing power entirely. It becomes a one-way game there onwards.
In 2014, there was an insightful report carried by the Los Angeles Times titled, “Hardship in Mexican farms translated into bounty on US tables”. Contrary to the rosy picture projected by the Walmart PR machinery, the procurement for Walmart from Mexico had not benefited the local economy of Mexico. The condition of farmers and workers on contract-farming had worsened. Wages had shrunk. More output was demanded on existing terms and even cases of man handling farmers were reported. The race to beat the other big retail competitors puts a major brunt of cost efficiency on the supply side. Leveraging the power of monopolistic bargaining, the corporate entity often ends up hammering the farmers by exploitative purchase pricing. Most of the international evidence we have at hand portrays the dangers of capitalistic business models in retailing for geographically distributed small producers who are not in a position to bargain for a fair price with these bulk buyers.
On the socioeconomic front, a sharp rise in income inequality and poverty has also been witnessed. The per capita income does rise, but, being an average data point it tends to even out the ugly picture of poverty and income inequality.
J&K is an agrarian economy which has a wide and thriving retail trading sector. These two sectors collectively provide employment to over 70% of the region’s labour force. Facilitating policies which will directly disrupt the income flows of both these core sectors might prove to be an economic disaster. Policy makers should rather focus on developing a vibrant co-operative structure for saving the interests of agriculturists while also helping them in enhancing their margins through marketing support. The retail sector which has already been suffering from a long economic winter in the region deserves safeguards rather than throwing them in an arena which they are not prepared to fight. Let’s hope that the bandh announced by Jammu traders did wake up the administration and policies in future are more about safeguarding the interest of the indigenous businesses without losing the sight of facilitating productive investment.
Views expressed in the article are the author’s own and do not necessarily represent the editorial stance of Kashmir Observer
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