Are rural areas ill-suited for the organised retail business? This question has assumed significance in the ongoing debate on direct foreign investment (FDI) in retail, especially given the government’s misconceived notion that such investment should be restricted to those cities with a population of above one million.
Such a stipulation automatically debars the entire rural belt from access to efficient marketing by reputed global retail chains. Indeed, only 35 cities are populated beyond one million and they, together, account for only a little over 10 per cent of the country’s population. Limiting organised retailing to these urban centres will amount to depriving around 90 per cent of India’s people of this modern facility.
This is untenable. In fact, FDI in retail can be more relevant and beneficial for rural areas than urban centres which are already serviced by various kinds of markets. A strong case to this effect, based on well-founded arguments, has been put forward to the government by DCM Shriram Consolidated Ltd (DSCL) which runs a hugely successful rural retail chain, Hariyali Kisaan Bazaars. Operating on an innovative business model that caters to most needs of the rural population at one spot, these outlets have become virtual hubs of rural development.
“The government should, in fact, make the presence in small towns and rural areas binding for the FDI-based organised retail projects,” asserts DSCL Chairman and Senior Managing Director Ajay S Shriram. “Retailing is a specialised activity and international companies have gone through the learning process to acquire the relevant expertise. Why not to capitalise on it?” he adds.
That modern retail in rural markets is viable, more so if it also includes the marketing of agri-inputs and services for farmers, has been amply borne out by the experience of the leading Indian retail companies as well as by that of the modern retailers operating in the agrarians belts of countries like Australia and China.
The biggest problem that farmers normally face is the want of timely availability of inputs and a range of products of good quality, correct weight and at genuine prices. The modern retail trade can ensure all this in a transparent manner.
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Besides, such outlets can also have links with the banks, which can put up their counters there, and provide other services, including farm extension, for the benefit of the farmer-customers. The Hariyali bazaars, for instance, have employed agricultural graduates and post-graduate to guide their farmer-clientele. This has resulted in higher farm productivity and production.
A major advantage of modern retailing is that it would pave the way for a two-way engagement between retailers and farmers. Although retailers can source their supplies of farm products from the local cultivators, the farmers can get assured market for their produce. More significantly, this can help reduce the number of intermediaries and middlemen between growers and consumers. This would, in turn, bring down transaction costs in rural marketing to enable farmers fetch higher returns for their produce even as consumers get the goods at lower than usual prices.
Indeed, one of the key arguments by the opponents of the FDI in retail is that this will kill local shopkeepers and will, thus, create unemployment. This fear is unfounded. This is evident from the Chinese experience where both these sectors have coexisted and flourished. In fact, as Shriram pointed out, modern retail will generate additional employment in the rural belt without hurting traditional traders. Each of the Hariyali Bazaar outlets employs 200 to 250 workers, mostly hired from local areas.
The underlying message of DSCL’s well-argued submission to the government is that efficient retail chains can be a boon, and not a bane, for small towns and rural areas and can actually spur all-round development there.