Back in the days when I had internet access, I had picked nits with Gaurav over the suitability of telecom as a poster child for reform. I had said that telecom benefitted so much from network effects that it wasn’t fair to attribute the entire success of the telecom sector to reform- though of course the success wouldn’t have happened if reform hadn’t been there in the first place.
I also promised two follow-up posts. This is the first one, and talks about which industry is a suitable poster child for reform.
That industry is organised retailing- the Big Bazaars, Food Worlds, Planet Ms and Shoppers’ Stops. And shortly Reliance Retail, of course.
Organised retail is a true barometer of reform because it’s the last link in the supply chain. So, no matter which sector of the economy actually gets reformed, the impact will show up in a retailer’s profits- through increased sales, better operational efficiencies, or both.
Let me repeat that: there is no economic reform which will not benefit organised retail in some way or the other.
Labour and pension reform? Allows retail outlets to work longer hours attract more customers, and reduces the risks associated with permanent employees. And reduces the price of merchandise too, if you see the benefits that are accruing further back in the supply chain.
Real Estate reform? It lets retailers build large-format stores, and increase their economies of scale and efficiency. It also frees up land use, making land cheaper and improving profitability.
Agricultural reform? It’s already happening. Reliance Retail isn’t just building grocery stores, it’s also buying produce markets. The scale of the new market reduces waste, gets the farmer a decent price, and brings down costs. The farmer’s happy,Reliance is happy, and the consumer’s happy. It’s win-win for everyone except the middleman.
Tax reform? Once the whole sclerotic system of octroi and inter-state sales tax and excise variations is removed, the supply chain becomes much more efficient. Much less pain for the retailer.
Financial reform- brings down the cost of money. Improves capital efficiency and puts more money in consumers’ wallets. Win-win.
The next time I have proper internet access, I’ll post about what other industries could benefit from network effects the way telecom has. Also, a guest blogger may shortly be posting more specific details about how octroi and the current state of agri-markets are screwing up life for retailers.