In the US, the world's largest retailer, Wal-Mart, may have to contend with Democratic leaders who try to block many of its notorious plans. But in India, it could at last find some friends.
''American dream coming to India'' is the title of the news story by an Indian newspaper. That was the mood of a section of elite Indian consumers after the backdoor entry of Wal-Mart into the Indian market, through a tie-up with an Indian telecommunications company, Bharti group. India has not allowed foreign direct investment (FDI) in multi-brand retail format. But it permitted FDI in wholesale trade and logistics and back-end support. Circumventing the existing policy regulations,Wal-Mart gained a foothold in the Indian market.
The agreement between the two companies requires the Indian company to look after the front-end of the business and Wal-Mart to do the supply chain, logistics and other back-end operations. The first stores are to be open by August 2007 and later there will be several hundred stores, branded with the of names, Bharti and Wal-Mart. Regarding the investments, Sunil B Mittal, Bharti's chief executive officer, said that, "given the size of India," they are "talking in billions of dollars,"
Last year after meeting the Indian prime minister, the CEO of Wal-Mart's international division said that "India represents a $250 billion retail market, growing at 7.2% a year, but modern retailing is just starting to emerge. This shows us that India is a huge organic growth opportunity for Wal-Mart." But its India plans was put on hold thanks to the firm stand of the Indian Leftists, on whose support the present government exists.
India's retailing business accounts for 14% of its GDP. War for dominance in the Indian retail industry has now intensified. India's monopoly houses like Reliance are in the lead. However, the bullying power of Wal-Mart is unique. Indian retailers cannot compete with Wal-Mart's aggressive push of "Every Day Low Prices." So, India's 15 million outlets, the highest retail outlet density in the world, are under threat. Also, the future of about 12 million entrepreneurs and shopkeepers is under severe strain. Closure of their shops would result in loss of their jobs, making the situation worse for over 60 millions households.
But the wealthy consumers have a fascination for Wal-Mart shops. That was what the multinational retailers are trying to take advantage of. Since the markets in the developed world are increasingly saturated, the wealthy sections in developing counties which benefited under neo-liberal regimes are a huge potential market for them. Last year, AT Kearney, the international management consultancy, in its annual Global Retail Development Index, placed India at the top among 30 emerging markets worldwide. The report said that India is at its "peak attractiveness" with an "under-served $330 million market grown at an average of 10 per cent during the last five years." Conceding that one-third of the country lived below the poverty line, the report noted the "increasing mobility among the middle and upper classes, coupled with growing urbanization" as a reason for "growing demand for retail goods." Those upper strata are fond of glitzy hyper malls, supermarkets and department stores. Though Indian metros have such stores now, they need more stores which are more organized.
But ordinary Indians buy their goods in the traditional retailing, done through petty shops, owner-operated "general stores" and street vendors.
Many among the urban consumers have an inadequate knowledge about the multinational corporate players in retail trade. They think that they could buy goods in cheaper prices with better quality. Increasing studies about the operations of Wal-Mart show that it is nothing but a myth. Also, the Indian consumers have yet to be informed of the condemnations leveled by a good number of critics, labor unions, activists and politicians about the malpractices practiced in Wal-Mart Stores Inc. The reasons for its failures in the global market in Indonesia, Korea, Germany and elsewhere are also obscured in the current debate on the entry of Wal-Mart.
As the past experiences suggest, foreign investment in the traditional retail industry will squeeze the domestic manufacturers and farmers. Indeed, India has to bear a heavy social and economic costs due to Wal-Mart's entry into the Indian market.
N. Gunasekaran is a political activist based in Chennai, India.
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