The human factor in retailing

Instead of focusing on livelihoods and consumers governments have been exercised over a non-issue: foreign capital

Since circa 2007, India’s retail industry has been the focus of acute policy attention, little of which has prevented the inevitable churn forced by structural change, the “non-cooperation movement” by distributors being the latest evidence. The irony is that over more than two decades, Indian retail policy has been uniquely muddle-headed and it’s likely to stay that way in the third decade of the 21st century.

That’s because instead of focusing on the key questions — jobs, livelihoods and consumer benefits — governments from the United Progressive Alliance to the National Democratic Alliance have been exercised over a non-issue; whether “foreigners” and their capital should be allowed into this sector. Originally a concern of the left parties, on which the United Progressive Alliance once depended for support in Parliament, this quaint foreign paranoia has now afflicted the right as well. The real story, of course, is that across the political spectrum retail policy is being addressed from the point of view of vested interests — domestic corporate retailers initially (though they are now thirsting for foreign direct investment), and politically powerful kirana networks that think their businesses will vanish under the onslaught of organised retail and e-commerce.    
 

The upshot is that we have — still — such weird asymmetries as foreign direct investment permitted in “single brand retail” and wholesale operations but subject to conditions (some stated, others dependent on whatever the bureaucrats of the day may think up) and 51 per cent in “multi-brand” retail, an artificial distinction that exists nowhere else in the world.

The amusing aspect of all this political hedging on retail formats is that it hasn’t really acted as brake on foreign retail brands flooding the Indian market. Over the past two decades, the traditional Indian yearning for foreign goods has been satiated by the presence of almost every self-respecting global brand in India (a fact that has made shopping overseas so difficult unless you are buying authentic Chinese fakes). Rather than grapple with policy intricacies, global retailers have exploited the easy route of franchising Indian partners to make their entry into what should have been a fast-growing consumer market.

But satiating the Indian consumer’s desire for foreign brands is the least of these developments. Pre-demonetisation/rushed goods and services tax introduction /Covid-19, it was easy to see the jobs boom that this sector has generated, most notably for women. Many economists have stressed the importance of attracting manufacturing dollars to sink into the ginormous factories that create millions of jobs. But India appears to have missed that bus, with factories automating at supersonic speed and global manufacturing money headed for Eastern Europe or China’s immediate neighbours Vietnam and Indonesia. E-mobility may change those dynamics but that’s still a market in the making. Though it is true that retail lacks the same employment intensity as manufacturing, the business is suited to the low- and semi-skilled nature of India’s emerging labour markets.  

The world of retail e-commerce has suffered similar problems even though the business is dominated by two of the biggest names in global retail — Walmart and Amazon. Walmart, having been thwarted in the brick and mortar avatar, finally debuted via a buyout of Flipkart. More to the point, both corporations led the e-commerce retail revolution in India that enabled, say, a Nykaa to list at a giant premium.

Yet, the policy approach to this sector has been to focus on control rather than enhancing ease of doing business. Earlier policies, issued via the unique instrument of press notes, restricted e-commerce platforms from trading in goods sourced from retail outfits they owned. That encouraged Flipkart and Amazon to explore contorted corporate structures to get around these rules. The draft policy issued earlier this year made these restrictions more specific and draconian and also puts curbs on flash sales. Note that similar restrictions were not applied to store brands promoted by the domestic brick-and-mortar retailers nor to their own heavy festive discounting. The flash sales curb, in fact, was imposed in response to complaints from kirana lobbies.  

Only the Big Two and analysts protested at this frank favouritism to domestic brick-and-mortar retail ecosystem. But once it sank in that the new policy makes no distinction between foreign and Indian e-commerce, the big guns of Indian retail, with their seamless brick and mortar-to e-commerce “super apps” in the making, howled in protest. How far their entreaties will be heard will be seen in the final policy that the government said will be announced “soon”.

In the meantime, under the radar everybody has missed the genuine grievances of multinational consumer goods distributors who are being undercut in the supply chain by the lower prices and better margins being offered to the emerging — domestic — B2B chains. Threats of strikes and so on have brought the fast-moving consumer goods majors to the negotiating table. For now. When B2B distributors gain traction it may be another story. So it’s not the foreign versus domestic issue or competing formats that policy-makers must focus on but anticipating the human dimensions of an emerging business.