Retail
Policy Must Ensure Competition
December 4, 2006,
New Delhi
The retail sector continues to be in news. Though the government
has decided to go slow on allowing FDI in the sector, big things
are happening, whether it is Reliance making foray into this emerging
area, or Bharti joining hands with Wal Mart.
In a press release issued here today, CUTS International,
a leading research and advocacy group has asked the government to
adopt a proper policy and regulatory framework for the retail sector,
which can ensure that competition is embedded in the sector, for
the benefit of both consumers and suppliers.
“Our studies across both rich and poor countries
have shown that wherever big retail or supermarket chains operate,
both the consumers and producers get the short end of the stick,
in the absence of proper regulation”, says CUTS Secretary General,
Pradeep S Mehta. CUTS works on competition and regulation issues
around the world, through its multi-country projects and offices
in London, Lusaka, Nairobi and Hanoi.
The moot point is that the sector is going to grow
even if there are concerns about the small traders being adversely
affected. However, it would not be prudent to stop growth of this
sector just to protect small traders. Because this is the way things
are going to move and should move in the long run. Though it is
naïve to argue that the small traders will not be affected,
the fear is often exaggerated.
Small traders have some advantages. Not only that
they can be conveniently located, large section of our population
cannot afford to visit the large stores. The large stores are good
only for those who buy their household requirements on a weekly
or even on a monthly basis. Unfortunately, many of our people do
not have enough money to buy even for the next day!
“However, there has to be enough competition in
the retail sector, not only to give a better deal to the consumers,
but also, and probably more importantly, to protect the small and
medium producers from the monopolistic anticompetitive practices
of the giant retailers”, said Mehta.
Globally, it has been found that they undercut
the producers even though the consumers smile. In India, the producers
are not only the big companies but also small producers and farmers.
Going slow on retail FDI can be a good strategy
to promote competition in the sector in the long run. Though the
sector is growing, there are not too many large players and hence
immediate opening to FDI might mean that the market will be dominated
by a few giants. By giving some time to the domestic retailers to
grow and then opening up for FDI will ensure a more competitive
market in the long run.
In the short to medium term, it must be ensured
by the competition authorities that these domestic retailers do
not abuse their market power, in the long run, it would better to
allow the foreign retailers rather than relying on competition enforcement.
Care, however, has to be taken that these domestic
retailers are not taken over by the global giants whenever we decide
to open the sector for FDI. Otherwise, competition will suffer as
we have seen in the soft drinks sector where we are stuck with just
two players. Unfortunately, they prefer to compete in TV, newspapers
or even in court rooms rather than in the actual market place.
The crux of the issue is that promoting and maintaining
long run competition should be the objective of the retail sector
policy.
