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Aug, 01 2007

THE ENDLESS LICENCE RAJ

Grocery, fruits and vegetable retail in the country is likely to be regulated through licensing.

Grocery, fruits and vegetable retail in the country is likely to be regulated through licensing. According to the model being considered by the government, any shop dealing in the retail of food and grocery items such as atta, edible oil, fruits and vegetable and spanning over 10,000 sq.ft will have to seek licence from the local urban body administering that area.

The object of the policy, being worked out by the Commerce, Urban Development and Labour Ministry, is to check unfettered growth of grocery retail and to protect small kirana stores by restricting the mushrooming of organised retail outlets in a particular catchment area.

When implemented, the licensing policy will have a direct impact on all such hypermarkets where selling of food and grocery items is proposed. Both Reliance and Bharti plan to operate huge hypermarkets ranging from 50,000 to 1.5 lakh sq.ft in certain cases.

The retailers would only be allowed to operate in a specified catchment area, thus minimising the scope of competition between them and the local kirana shops. Large mega outlets and hypermarkets would be asked to operate from outside the city.

While initiating the regulation of corporates' entry into the retail sector, the CPI (M) suggested measures and called for government's intervention to prevent 'private monopolies' from developing by asking government marketing agencies to compete with large private retailers. While West Bengal is already in the process, Kerala has banned Indian and MNCs from opening retail chains in the state.

When implemented, the mandatory licensing will, however, not have an impact on the basic food and grocery format of retailers like Reliance, Future group and Bharti Retail, but may impede their future expansion plans. While Reliance Fresh stores are spread over 4,000 to 6,000 sq.ft, Future Group's Food Bazaar's average size is 5,000 sq.ft and Bharti’s proposed food and grocery format will cover over 2,000 to 5,000 sq.ft.

The policy will attempt to stymie big retail by giving local municipal corporations the right to decide where in the city they can set up shop. The apparent reasoning being that this will prevent big retail from setting up shops in areas dominated by small retail and, thereby, ensuring the survival of the latter. This, policymakers argue, is important because a number of people employed in small retail could lose their jobs if small retail fails to survive.

If India's long experience with red-tapism and licensing predicaments is anything to go by, formulation of the policy will result in unfair treatment to the consumers and harassment for big retailers. Would the government impose tax on big retail to drive up prices?

Apparently, for years small retailers have been selling goods over the MRP, creating artificial shortages by hoarding and adulterating basic commodities. The licence policy, in all probability, is capable of being misused as an opportunity to harass big retailers. Today, when most businesses depend upon efficiency, red-tapism may prove to be costly to the entire industry. The only people who will end up benefiting would be small retailers and officials of municipal corporations.

If the government wants the millions of kirana shops to continue to benefit, it has no business in depriving the crores of Indians of lower commodity prices.

And, with the coming of big retail and the growth rate projected, there will be many more jobs added, much quicker than small retail ever could.

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