We have just had a political row about allowing foreigners to invest in retail business. It took a typical turn. There was only abuse, no debate. Except for a few sentences from the prime minister, the rationale of the decision was not explained by the government. The Opposition took even less interest in argument; it saw an opportunity to harass the government, and took it. After waste of much lungpower, we went back to where we started.
Presumably, the argument is about what would happen to small retailers if foreigners set up malls in their neighbourhood; the fear is that retailers would not be able to face the competition and close down. Underlying the fear is the assumption that either the malls’ profit margins or their costs would be lower. If it is profit margins, the question arises why we should pay retailers higher prices. The nationalists’ answer would be that the retailers are Indian and must therefore be protected against foreign competition. This argument ruled the roost in socialist India; when the government began to open the economy to trade and foreign investment in the early 1990s, precisely this kind of fear was expressed just as violently and loudly in respect of our manufacturing industry. Foreign competition was introduced, and Indian manufacturers did not die. They adapted themselves, and learnt from foreigners. Today, apart perhaps from some consumer durables, the market share of foreigners or joint ventures in industries is small; in many industries, Indian firms have staved off foreigners, and taken competition to foreign markets.
The little-India nationalists were proved entirely wrong in respect of manufacturing. Is there any reason to expect them to be right in respect of retail? Retail markets are much less integrated than industrial markets. Industrial firms sell and compete all over the country. Consumers, on the other hand, do not travel across the country to shop; they shop in the neighbourhood. So the impact of foreign shops would be much more local than that of foreign manufacturers.
A hundred would be an overestimate for the number of retailers that might be affected by a single mall. Suppose a thousand malls opened in a year; they would affect a lakh retailers at most. The Communist Party of India (Marxist) says that there are 12 million shops under 500 square feet; so less than one per cent of the shops would be affected. It would be years before malls had a significant impact. There must be many areas where the density of purchasing power is simply insufficient to support a mall; retailers in such areas would be immune to competition from malls.
While all the dust is being raised about foreign direct investment in retail, malls owned by Indians have been around for some years; a rational government (or Opposition party) would commission a study of their impact. My casual observation is that malls have tended to come up in the periphery of big cities; real estate prices in city centres are simply too high for them. The malls’ performance is mixed; there are many that are ailing or have closed down. It is simply not true that smaller shops cannot compete with malls. There is certainly no rush of Indian capital to invest in malls; it suggests that their superiority over little shops is a figment of imagination.
In richer countries, malls have won a high proportion of the retail market; why would that not happen in India? The reason is that consumers in rich countries have cars, and are therefore more footloose in their shopping. I have a friend who lives in a Hampshire village. Both he and his wife have Rovers — what we call SUVs. Once in a while, when he feels like it, he drives down to Southampton, which is perhaps an hour away, gets into a ship with his Rover, gets off in Cherbourg, drives up to a nearby mall, loads up his boot with French delicacies and wines, has a good French lunch on the seashore, and goes back home. This is not his normal shopping trip; but even an average Englishwoman can drive out of her town or village to a mall in the countryside.
The result is that the high streets of British villages are dying. Their share of the retail market has fallen to 42.5 per cent, while shopping outside towns now takes 31.5 per cent of the market. Neighbourhood sales are 16.1 per cent, while sales not involving shops — for example, on the internet — account for 10.2 per cent. Since 1950, the number of butchers has gone down from 45,000 to less than 10,000; that of bakeries from 25,000 to 8,000; that of fishmongers from 10,000 to 2,000. Eight thousand supermarkets account for 97 per cent of groceries. In the past 10 years, the number of supermarkets has gone up by 35 per cent, whilst the number of off-licences (liquor shops) and tobacconists has gone down by more than 50 per cent, and that of food speciality stores by almost a third.
That worries the British. Many of the high streets are architecturally distinctive. Many British villages are centuries old, and so are their high streets. And they are centres of vibrant communities; in every high street one would find a butcher, a greengrocer, a chemist, a church, and so on.
So the British government appointed a one-woman commission consisting of Mary Portas; she has just submitted her report. She wants every high street to have a management committee, which she calls a Town Team. The Town Team should work to make its high street accessible, attractive and safe. She wants the government to give powers to local authorities to buy up empty shops, issue Empty Shop Management Orders, give tax rebates to new businesses, and put shops to “meanwhile use” — that is, get them opened until the landlord puts them to some use. She wants zoning restrictions on property use to be relaxed so that virtually anyone can trade on high streets. She wants the government to declare one day of the week market day, when anyone can sell anything on the street. She wants local authorities to improve parking in the vicinity of high streets, and not to charge too much for it.
She is not sympathetic to betting shops, a fixture of British high streets where people — almost entirely men — go and place bets on horse races, dog races, or play on betting machines. They are classified as professional and financial services, which sounds very respectable; Mary wants the government to create a special class for them. The government restricts the number of machines in a shop; so the shopkeeper just sets up another betting shop down the street. Mary wants the restriction on the number of machines to be removed.
These are only some of Mary Portas’s recommendations; they are so mild and hesitant. The Indian instinct is to stop everything unless everyone can agree to let it start; the British approach is to allow everything unless there is a very strong reason to stop it. So Mary cannot recommend restrictions on the number of supermarkets and malls. That is why she had to be so creative in her recommendations.