Incorporation of J & K’s Retail | MENAFN.COM
(MENAFN- Kashmir Observer)
Implications for trade and the agricultural sector
ON the 22nd of last month, a very significant form of protest was registered by the trade and business community of the Jammu division. The protest was observed against the proposed plan for the next outlets in Jammu by India’s largest retail chain, Reliance Retail. Although the giant corporate entity brushed off the news as bogus, a wide range of genuine sources showed that Reliance was working on an aggressive plan to create 100 retail grocery stores in the Jammu division and 7 in the Kashmir division. Those who oppose the plan saw the move as a death blow to the vast unorganized retail sector operating in the region. They fear that the sheer scale of economies of scale and the efficiency of the retail supply chain available with Reliance, could trigger a tangible and immediate risk of rendering the lakhs of small traders completely unnecessary. Those in favor of the move say it can create a lot of jobs as well as income for owners of commercial buildings. From a consumer perspective, they anticipate efficiency gains in final prices and easy availability of commodities to consumers. They also see the formalization of agrarian supply chains in the region as an added benefit.
Before embarking on the pros and cons of corporatizing retail in Jammu and Kashmir, it is essential to understand the underlying drivers of the region’s economy and whether these dynamics are suitable for the changes. proposed as envisioned in the new economic reality.
J&K is primarily an agrarian economy with a consumption-oriented structure. When we talk about supply chain we see the majority of companies in this region playing in the far north or the far south of it i.e. most of us are either in agriculture or agriculture-related businesses or as traders providing support until the last stage. of the supply chain. All the fun of skimming the margins is in between, which unfortunately, in the case of J&K, remains the weak area. To put it in perspective, among a total workforce of 44 lakh at J&K, the trade and retail sector provides jobs for more than 10 lakh. This shows the systemic importance of this sector. Its job absorption capacity is lower than that of agriculture. Now imagine the lethality of something that has the potential to directly disrupt these two systemically important labor-intensive sectors in the region.
A wide range of research done by reputable institutions across the world has proven time and time again that the entry of business entities into the retail space creates an immediate drop in the profitability of existing small businesses in the region. This leads to an upheaval leading to the closure of a majority of small retail outlets due to their low load capacities, their inability to contain market share, the drying up of supplies due to monopoly purchases by the retail giants and other economies of scale. With deep-pocketed retail entities in the arena, the impact of sales on small stores intensifies and profits continue to decline until all of those micro-accumulators become micro-subsistence seekers. .
What about the new employment opportunities that will be created by the retail business entity?
There is an old (June 2007) but very relevant research article published by the “Economic & Political Weekly” titled “Impact of Malls on small shops and Hawkers”. According to the report, which was based on data around Mumbai’s shopping malls, the number of jobs created by corporate entities barely represents 10% of the number of jobs lost with its emergence. Essentially, the type of jobs created by organized retail chains have certain barriers to entry, such as minimum qualifications, etc. While we are not talking about malls here, the underlying dynamics that may be disrupted by the corporate retail entity will also have somewhat similar repercussions.
What about the formalization of the agrarian supply chain?
Well luckily we have bundles of case studies from the developed world where it has been proven with hard facts that the condition of farmers, when exposed to monopoly buyers, becomes more miserable. When they lose the choice to trade with several small entities, they lose the ability to maneuver the markets with a certain degree of freedom. This leads to giving up pricing power entirely. It becomes a one-sided game from there.
In 2014, the Los Angeles Times published an insightful report titled “Hardship on Mexican Farms Translated into Bounty on American Tables.” Contrary to the pink image projected by Walmart PR machines, sourcing for Walmart from Mexico had not benefited the local Mexican economy. The condition of farmers and contract agricultural workers had deteriorated. Salaries had fallen. More production was demanded under existing conditions and even cases of farmers handling men were reported. The race to beat other major retail competitors is weighing heavily on profitability on the supply side. Taking advantage of monopoly bargaining power, the corporate entity often ends up hammering farmers with abusive purchase prices. Most of the international evidence available to us describes the dangers of capitalist retail business models for small, geographically distributed producers who are unable to negotiate a fair price with these wholesale buyers.
Socio-economically, a sharp increase in income inequalities and poverty has also been observed. Per capita income is increasing, but given that this is an average data point, it tends to level the grim picture of poverty and income inequality.
J&K is an agrarian economy which has a large and flourishing retail sector. These two sectors collectively provide employment for over 70% of the region’s workforce. Facilitating policies that will directly disrupt the income streams of these two key sectors could prove to be an economic disaster. Rather, policy makers should focus on developing a dynamic cooperative structure to safeguard the interests of farmers while helping them increase their margins through marketing support. Retailing which is already suffering from a long economic winter in the region deserves safeguards rather than throwing them into an arena they are not ready to fight. Let’s hope that the bandh announced by traders in Jammu has awakened the administration and that policies in the future are more aimed at safeguarding the interests of indigenous businesses without losing sight of the facilitation of productive investment.
The opinions expressed in the article are those of the author and do not necessarily represent the editorial position of Kashmir Observer
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