ibnlive » India

Jun 20, 2007 at 04:01am IST

India 360: Retail vs local vendors

Inflation has crossed six per cent and there is a rise in the price of food across the country. Prices of milk vegetables and pulses have risen in most cities. Tomatoes are costing Rs 15 a kilo, onions are at Rs 18 and the prices of fruit, milk and pulses are touching the sky.

The urban consumer is shifting focus to food retail stores like Reliance Fresh, Big Baazar and Subhiksha - which promise morcha against kharcha (protest against spending too much).

They say these are the cheaper alternative to their local vegetable vendor.

So, is the local sabziwala (vegetable vendor) being driven out of business by big chains and are customers losing out on their fresh produce? Are middlemen responsible for the price rise and is this price rise going to be the next economic crisis for the UPA Government?

The question that was being asked on India 360 was: Is the Government doing enough to control prices?

On the panel, to try and answer the question were Senior Economist, CRISIL, Sunil Sinha; and Vice President Mumbai Grahak Panchayat & Consulting Economist, Dr Prabhakar Joshi.

What is the reason for price rise?

Are prices spiraling out of control because of the rising costs of inputs or is it because demand has outstripped supply?

To this Sunil Sinha said, "When you look at the prices of the commodities one should consider manufactured and primary products - like vegetables and pulses - separately. Prices of primary products are primarily rising because of supply constraints. On the other hand the cost of manufactured products is increasing because the cost of production is expensive - metal and oil prices have gone up and these impact the prices of manufactured products."

People speak

However, what is to be noted here is that the demand for primary products comes mainly from the poor in India and so they are the hardest hit in this price rise.


Lower-middle class consumers in Maharashtra say that the increase in prices of chillies onions and potatoes primarily is going to hit them very hard as these particular vegetables are used in almost all the foods that are cooked in this region.

The people say that the prices of commodities such as chillies have gone up by Rs 100 in just 10 days time. They say that the prices are bound to burn a large hole in their pockets.

In Ahmedabad, there was a rally against rising prices on Monday. On Sunday evening, three major dairies in the city raised the price of milk by Re 1 - from Rs 21 to Rs 22. This is the highest price for milk that people pay in the entire country.

The lower-middle class group is absolutely disillusioned with the price rise. People say they don't know who to blame and that they are worried about their budgets going awry.

In the National Capital Region, shoppers are vouching by the retail stores, which are selling goods for a much lower price than what the local vegetable vendors and the sabzi mandis (vegetable markets) are selling them at.

People say that not only are the prices cheap, but the quality of products in retail stores are much better than they are in vegetable markets. They say that they also get a much better variety in these retail stores.


Customers say that they get products which are attractively and hygienically packaged at prices that are cheaper than what they get from local vendors. They add that they do not mind the added costs like transport - for reaching the stores - because the hygiene and the variety make up for it.

Is popular discontent on price rise rising?

Are prices just getting too astronomical for the middle class? To this Prabhakar Joshi said that from the year 2006, inflation has become a major matter of concern.

"The Government talks about the wholesale price index which really doesn't concern the common man. For the common man, it is the cost of living index which is higher than the wholesale price index. Last year there was a 9 per cent price hike in food articles," said he.

He added that he does not see any great relief coming over the next few months.

Experts feel that inflation may show itself in many ways like voter choices and election results.

Who is benefiting from price rise?

Is the farmer the beneficiary of the rising prices or is the middleman taking all the money?

To this, Sunil Sinha said, "If you look at the process of distribution, as of now the it is the middleman who has been making most of the price rise. He is the one who procures the produce at a low cost from farmers and by the time products reach the retail level, it is the consumer who is the most affected with the high prices."

The local vegetable vendor is being driven out of business by the retail chains and the farmer is selling at a low price and so the inflation is hitting the poor in many different ways.

However, Prabhakar Joshi said that the total demand for articles is so high that big retail malls may not be able to cater to the requirements of all consumers across the city, so in that sense the local vegetable vendor may not really be driven out of business.

He said that if Prime Minister Manmohan Singh's plan of a single market for farmers can be implemented, then there will certainly be a lot of improvement in the pricing mechanism.

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