Sunil Jain: May the best spreadsheet win

RATIONAL EXPECTATIONS

Young Sachin of Reliance Retail looked at me as if I'd lost my mind""I was delivering a lecture on the Indian retail environment, and speaking about how the CPI(M)'s proposals were giving retailers such as his boss the jitters. While the Left government in Kerala is already talking of banning large retailers, the Left-supported UPA government at the Centre is also talking of changing the definition of what franchisees are""one of the demands of the CPI(M), to prevent what they call back-door entry of big foreign firms like Wal-Mart into India's retail sector. It's just a matter of time, I said, before more restrictions are brought in and, indeed, that's why various retailers (see Making organised retail work, 25/6/07) are going slow on their expansion plans.

Not surprisingly, given the party's history with detailed input-output models that require supercomputers to crunch the necessary information in real time, the CPI-M suggestion (www.cpim.org) is along similar lines. So, its note, On Regulating Organized Sector in Retail Trade, gives the usual spiel on how 30-40 million workers in the unorganised sector stand to lose their jobs once Wal-Mart comes in""this assumes everyone will flock to these stores, while projections are that in 3-4 years, the figure will touch 10 per cent. There's nothing on the huge savings that the rest of the 960 million Indians will make from organised retailers who sell at lower prices and the impact of this on increasing savings and investments in the economy. But this piece is not about whether modern retail's a good idea, it's about the new bureaucracy the CPI(M) wants Dr Manmohan Singh to bring back, and the complex real-time spreadsheets Reliance will need to use.

The main suggestion is that all organised retailers be licensed by committees that will also have representatives of small retailers and vendors""since it is they who will get hit by large retailers, it is obvious how they will vote. But presumably, since these bodies can be bought over, or may not be able to see the larger picture, the party suggests a more comprehensive solution""issue licences on the basis of a population criterion! "Not more than X number of large format retail stores of Y format per Z population" are to be allowed, the note says. So, for instance, for every million people, we could allow 10 large format retail stores, of which there could be three hypermarkets, two discount stores, two supermarkets and the rest would have to be convenience stores.

Since it is obvious there are huge differences among various parts of India, and this is where Sachin's eyes glazed over, the CPI(M) suggests the criterion not be rigidly fixed, but "may vary between states and cities depending upon the nature of the retail sector" and, please note, the "needs of consumers". So, while one hypermarket per 333,000 people may be all right for Delhi and Mumbai, it may be better to make that 500,000 persons in Chandigarh and 1 million in Bhopal; presumably, a greater proportion of convenience stores could be allowed in such places, once some kind of survey is done to ascertain the "needs of consumers". As Bhopal grows, and its needs start mirroring those of Delhi, it could be allowed more hypermarkets as well""so, while planning the number of stores it can (as opposed to "wants to") build across the country, the Reliance Retail management's spreadsheet needs to take into account, over time, these sort of permutations and combinations that could allow it to build different formats of retail outlets. That is, it needs to strike a balance between building now and waiting for a while.

But since this kind of straight jacket thinking can be quite stifling, and there may be existing shops that large retailers have already bought out, the CPI(M) has some suggestions here as well. In such cases, it says, "it should only be on the basis of an agreement to share a substantial (exact details left open!) proportion of its floor area with small retailers at concessional rent". And, in each such case where the shop's floor area exceeds a specified (government to decide?) limit, it is suggested that an Environment Impact Assessment be made mandatory""that is, if 2,000 cars come up to the store every day, and another 10 trucks to deliver the goods, how will this impact the environment?

While it is not certain if the CPI(M) thinks the Ministry of Environment is up to the task, it is of the view that another government body, the Competition Commission, is not up to the job it needs to. Large retailers like Wal-Mart attract customers by offering much lower prices""so the way to prevent this is to stop the large retailers from offering the lower prices. It suggests that "a mechanism ... be set up where complaints about predatory pricing can be registered by small retailers". The reason why the Competition Commission won't do is obvious. Predatory pricing, the way competition law defines it, is below-cost pricing and by firms which have significant a market presence""so, if Wal-Mart comes into the country and offers below-cost prices, it will not be considered predatory since it has no market presence. In any case, if large retailers can lower their costs through larger supplier discounts or through cutting of wastage, as they invariably do, their lower prices won't automatically be considered below-cost and predatory.