Myth No 2: Jobs Growth

No points for guessing this is the most popular myth. Jobs growth is the Bhramastra of all the social carrots to lure the unsuspecting citizens. Everyone wants to be projecting helping the society and society wants to believe that what is being done is beneficial to it, hence whatever they are doing they are doing for a jobs growth. Re-election guaranteed!

Make no mistake there is lots of employment opportunities – of jobs and its creations – in the retail sector. 

The real question is how much will be the contribution of the new MNC players in the job creation and growth.

1. Before we get into the details, lets do some basic calculations,

About 5% of Indian population is directly or indirectly involved in retail sector. That is roughly about 6Crore people employed – direct and indirect – by retail. Since, there were about 1.3Crore retail outlets (as of 2007, let us assume no change), we can guess there are at least 1.3Crore people directly involved, and that leaves us about 4.7Crore people indirectly employed by retail sector. Therefore for every one direct retail employee / job there are about 4 indirect employee / jobs.

There are about 45 (say, 50) cities with million plus populations where the MNCs are currently allowed.

2. Let us take Walmart as generalization of the sector.

Walmart and its subsidiaries have about 8500 store globally with a collective turnover of about ~$450Billion. They together employ about 2.2million (22Lakh) people across the world. This gives us a per store average employment of about ~260 per store.

Assuming the same proportion of 1:4 (direct jobs : indirect jobs), one store provides close to about 1040 jobs. A total of ~1300 jobs per store.

Since there are approximately 50 cities that qualify for the entry, and assuming Walmart will have about 5 stores a city! (very generous estimates considering their business model, the entrenched competition and new competition), Walmart will create about 6500 jobs per city.

So on a national basis for all the 50 cities  the total number of jobs ‘created by Walmart’ would be close to 325,000 [ 3 Lac 25 thousand].

Now, let us assume these mega store cater to 1 Lac population, in any of these cities there would be space for 10 such stores. Let us assume there are 15(!) such mega stores in every eligible city, which would be practically impossible.

The total employment created by the super MNC retailers [across 50 cities, with average of 15 stores per city, with average of 6500 jobs per store] would be close to 50 Lakh [48.75 Lakh to be precise.]

So in the BEST case the total job creation seems to be limited to 50 Lakh or less than half a percent of the total Indian population!

3. There are several further arguments that can be made. Few are:

A. Salary of the ‘employees” of MNCs would be more than the salary of earnings from individual retailer, hence a vast majority of the population will be gainfull employed by these MNCs.

Unfortunately, that is not the case. The phrase “Walmart salaries” is not a cliché for nothing. These retailers are experts in squeezing costs in their venture to be efficient. They will squeeze the employees as well as vendors. Anyway, it would be very clear the salaries of majority of the jobs created are unlikely to be substantially better than their existing incomes. However, these “unorganized” workers may get various benefits like life insurance, health and disability insurance, retirement funds etc which will be helpful.

Also, what exactly are the opportunities opening up in these mega retails? We already have a large chunk of our smart youth working in call centers and BPOS, dutifully attending the chores of OECD countries. What is the value addition these youths can look forward to?

B. Cost of Displacement

So what is the real cost of displacing and setting up stores in larger amounts (in the hypothetical event of it happening)

Hundreds and thousands of small stores will be displaced if these gigantic monoliths become realities. 

Lets run a fun assumption:

Let us assume, 10 years down the line (2020) the Organised retail would be say, 20% of the market and Let us also assume about 40% of the stores are in the eligible cities. Therefore, we have about 52 Lakh stores would be under risk. That is also approximately, 1Lakh stores per Eligible City, there fore every store in a million-plus city caters to 100 people!?

Sounds too low to be true, there fore taking a second assumption of just 20% of small stores in eligible cities, the total population served by a single store would be about 200 people!!!

Now, let us assume one store displaces (or creates a foot fall) of about 50,000 people (only!), thereby wiping out the catchment of 250 small stores. The 15 stores per city (as in our assumption) would therefore displace, 3750 stores per city and about 187500 across the nation. Therefore about 187500 direct jobs, and 750,000 indirect jobs, totaling to about 940,000 jobs would be at risk.

Therefore the best case of the best case, there would be about One job loss for every, Five jobs created.  A maximum total of ~40,00,000 [40 Lakh] would be created in all the BEST case. Nothing more.

It is unlikely Per Store employment of big retailers are going to go above 6500, where as the small stores at risk are likely to rise substantially. All you have to do is the count down the jobs from below 40 Lakhs!

All these assumptions, though just descriptive and made to serve a point that these FDI retails will NOT open flood gates of retail jobs as expected or more precisely as Projected by politicians.

The social costs on the downside far outweigh any substantial upsides on the job market.

Conclusion:

So the basic idea to convey of this post is very simple: There aren’t going to by much job growth. That’s a myth. Are they going to take out the small retailers? Frankly, that would be their primary goal, albeit painted as “customer acquisition.”

If you interpret further, you will see how / why MNC retailers are not going to be successful in this cramped oversupplied environment, the low job creation numbers would be a testament to that. This would also mean small stores are likely to survive for much longer.


Update: According to 2011 Census there are 53 cities with Million-plus population.