Wednesday, December 14, 2005

Let those Kiranas go

The argument against retail FDI is based on "Save the kiranas". I say that the Kiranas should not be construed as the saviour of Indias economy and poor. In fact, there is no reason why we must all get together to save the Kirana.

Fact is, few kiranas pay taxes. They avoid (evade) tax and pay some to the customer. The customer finally pays for it by way of some extra cess and service tax when the finance minister cannot balance his books.

Fact is, kiranas offer employment rarely to anything more than the number 1, which is the entrepreneur himself. The boys who work there would be better off in schools or educating themselves.

Fact is, kiranas are inefficient, in terms of economies of scale.

Fact is, kiranas are as archaic as our small scale reservation policy.

The entry of big retail (whether Indian like Big Bazaar or foreign like Walmart) will allow the economy of scale to be passed on to where it belongs, to the end customer. The more the retailers, the greater the sourcing. Where do they source their produce from? The farmers. So who gets better prices? (I am imagining that they will be permitted to get in contact with farmers directly).

Our craftsmen and artists will be exposed to demands from the various parts of India and they too will hopefully grow from their niche markets into more profitable markets. Why do I think so? If there are 5 retailers, each one would want to differentiate. One or two of them will offer handicrafts in their stores. That itself will start creating a demand pull for crafts.

Home products and furniture is a fairly unorganised sector. A lot of order can be brought here too. Every sector that retail FDI touches, will make organised, ergo, result in better revenue generation for the government. Eventually, the salaried class will be spared some stick and the rich farmer may also end up paying a few rupees as tax.

Heres an Indian express edit that supports retail FDI

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