TRADE, with a GDP share of 15.1 per cent, only slightly less than manufacturing at 15.6 per cent, is an important segment of the economy.
More than 125 lakh kirana stores provide a source of livelihood to 16 crore people. Retail trade has grown faster than the economy: it registered a compounded annual growth rate (CAGR) of 9.4 per cent between 2004-05 and 2008-09 when the Indian economy grew at 8.66 per cent.
The retail trade comprises all kinds of people and formats – from street vendors to departmental stores of various types, shapes and characteristics.
More than 80 per cent of trade is accounted for by partnership and proprietorship forms – often called the unorganised sector. The kirana shop adjacent to my home opens at 7 am and closes at 10 pm every day, 365 days of the year. It is very efficient, and one can order through a mobile. The owner knows the tastes and price preferences of our family, but his business is classified as ‘unorganised’ by our experts and national income data.
The footfall in his shop cannot be measured using western models (since there is no place for anybody to set foot inside his shop), and so he is derided and ignored.
These are economic constructs imposed by the west on the rest and it is a form of terminological terrorism which is mouthed ad nauseam by our economists and policy planners without understanding the implications. The retail trade suffers from two major handicaps. One is the non-availability of credit at reasonable rates from institutions; the other is the bribe one has to pay to the government babus to leave him in peace.
Nagamma has been a flower vendor for more than 20 years in my suburb of Bangalore. When she needs a loan, she participates in chit funds. Sometimes, she has lost big as the chit funds were run by crooks.
As a finance professor, I thought I should do some good in the world of practical finance and advised her to open an account with a commercial bank for saving her hard earned money and perhaps get a loan later.
The branch manager – a pleasant lady – was also acquainted with the flower vendor for many years, but the core banking software solution used by the bank will not recognise the Nagammas as customers. The bank’s “know your customer (KYC)” norms require proof of address, PAN cards, proof of date of birth – everything but her dog’s surname. She has no chance of getting this kind of KYC done.
Large companies get loan rates below the prime lending rate, but my vegetable vendor gets it at 0.5 per cent per day. They have to return 50 paise at the end of the day for every Rs 100 borrowed in the morning. This will work out to be more than 180 per cent per annum.
My retail provision stores man gets his money in an interesting way. He gets Rs 45,000 (for a loan amount of Rs 50,000) upfront and pays Rs 500 a day for 100 days to repay his full Rs 50,000. It turns out to be more than 10 per cent for three months. More than 70 per cent of the working capital requirements of retail trade in 2009-2010 came from non-bank sources.
The other perennial problem faced by the ‘unorganised’ retail trade is the ‘organised’ dacoity by minions of the state. They need to bribe the cops, bribe the municipal authorities and other local goons. The cost can be as high as Rs 20 on an income of Rs 200 or so per day. That is 10 per cent of gross income. The same is true of fruit seller, the fast-food idli joint or the beauty parlour.
Instead of looking at these two important constraints imposed on the fastest-growing and most productive and efficient retail trade, our planners want to open the field up for global sharks in the name of liberalisation. For anything and everything the policymaker wants Indians to emulate the Japanese, the French, the Germans or the South Koreans.
All petroleum services and products, rice, tobacco, salt, alcoholic beverages and fresh food traded at public markets are excluded in Japan from any ‘distributional aspect’ by foreign companies. The French simply restrict any development of hypermarkets to protect what they call ‘centres of French towns and villages and the livelihoods of small shopkeepers’.
Germany has legislative constraints on outlets above 1,200 sq m. This is despite trade constituting a relatively small portion of their economy both in terms of employment and value addition compared to India.
The paan-chewing, dhoti-clad, English-ignorant retail trader should not be seen as an inefficient entrepreneur who needs to be bleached by globally-accepted detergents. What he needs is a level playing field, in the full sense of the term, with access to affordable credit and the abolition of inspector raj in the form of harassment by various arms of the government. We are still a savings-based, family-oriented economy.
The sooner we have a ministry of retail trade to protect, preserve and enhance the capabilities of our kirana stores the better for the Indian economy.
(The writer is a Professor of Finance, Indian Institute of Management, Bangalore and can be contacted at [email protected])
