For multinational merchants like Walmart, it seemed to be the long-awaited opportunity to jump into India with both feet. But, now, that moment appears to be delayed once again.
Late last month, Prime Minister Manmohan Singh announced that, for the first time, big foreign companies like Walmart and the British company Tesco could open retail stores in India. Until now, foreign companies have been restricted to serving only as wholesalers. That has already helped create more modern distribution networks, often while generating better prices for farmers and other producers, and giving customers better deals.
But expanding the foreign presence to retailing has been seen as the necessary next step. Praise for his announcement came from corporations and some of its 175 million farmers, who see the move as part of a wave of changes that might help jolt a slowing economy.
And opponents ? representing the 34 million people who work in retail and wholesale businesses, as well as left-leaning politicians ? were just as loud. On Monday, the government reportedly put on hold the decision to open up the retail sector. All of this places Walmart in a position hardly new to the company: at the centre of a raging debate that pits the multinational giant from Bentonville, Arkansas, against local mom-and-pop businesses.
For more than a year, Walmart has been operating a wholesale outlet in Jalandhar, known for its fertile farms and hearty food. Local businessmen like Ravi Mahajan, whose family has had a wholesale general store in the narrow alleys of the Imam Nasir market for 40 years, say their sales have been cut in half as their customers ? retail shopkeepers ? stock up at Walmart.
If the government eventually lets foreign firms expand beyond wholesaling to open retail stores, Mahajan said, many of his retail customers would be forced out of business, while squeezing out traders like himself who have long served as the crucial middleman. ?We?ll be destroyed,? Mahajan said last week, minutes after he and dozens of other traders burned an effigy with a bloated belly and a crudely drawn face, meant to represent multinational marauders.
But the business community is far from united in opposing foreign retailers. Farmers like Avtar Singh Sidhu, who sells potatoes to PepsiCo for its Lays chips and has sold baby corn and other vegetables to Walmart?s local partner, Bharti, argues that foreign retailers will be a boon to the struggling agricultural sector. The multinationals, he said, will buy directly from farmers and pay better prices than local wholesalers.
Already, he said, PepsiCo is offering R6 per kg for his potatoes, while local traders offer only R3. ?We need more competition,? Sidhu said. Policy makers are looking for ways to stimulate economic growth, which fell to an annual pace of 6.9% in the three months that ended in September. It was the first time India?s growth rate had fallen below 7% in two years.
The announcement by the UPA government on November 24 called for allowing foreign companies like Walmart to team up with Indian partners to open retail stores in metropolitan areas with more than one million people. The plan ran counter to the views of many politicians who say a slower approach is needed to protect indigenous firms and the rural poor.
But the Prime Minister and his backers have argued that foreign retailers could help reduce chronically high food inflation ? which has run around 10% for the last year, on top of 20% increases the year before. The retail proposal, proponents say, could improve the lot of the more than a half billion Indians still tied to the land, by improving the supply system from farms to consumers. An estimated one-third of some types of vegetables and fruits rot before ever reaching retail shelves. Speaking of the move, Raghuram Rajan, an economist at the University of Chicago, had said: ?This is a bold move, and I think this is a necessary move.?
At present, barely 6%of India?s $470 billion in retail sales takes place in organised retail stores, according to Technopak, a consulting firm. The rest takes place in small shops. By contrast, organised retail makes up more than 20% of sales in China and 36% in Brazil ? the two emerging economies to which India most frequently compares itself. (The figure is 85% in the US).
For decades, regulations and weak infrastructure have favoured small shopkeepers in India. Foreigners, since 1997, have been allowed to participate only in wholesale trading ? a segment in which indigenous operators have historically thrived.
In some cases, the government has granted these traders monopolies. Many states, for instance, require farmers and retailers to sell and buy fruits and vegetables only through wholesale markets controlled by committees of traders.
But Walmart?s experience in Punjab, one of the country?s richest and long its bread basket, provides a glimpse at what could lie ahead for the retail sector. Two years ago, the company started opening Indian wholesale stores called Best Price, that can sell only to retailers, hotels, restaurants and other businesses. The stores are owned jointly by Walmart and Bharti in a partnership that has four wholesale stores in Punjab, among its 15 total in the country.
Raj Jain, president of Walmart India, said that the partners were now expanding in south and west and that Walmart and Bharti had begun discussing plans for a new retail strategy that, he said, would be announced in the ?next few months.? But it will depend on what government officials say on Wednesday to Parliament.
Walmart, which does not disclose its revenue in India, had about 4,000 employees in the country as of August. The Jalandhar store, which opened in August 2010, looks and feels like Walmart?s American outlets, with broad aisles stacked high with merchandise. Rajat Agarwal, who runs his family?s grocery store on a busy market street nearby, said he had come to rely on Best Price because it almost always had the products he sold at his store. Often, he said, traditional wholesalers run out of the most popular brands like Sunsilk shampoo and Aashirvad wheat flour.
Prices also tend to be consistent at Best Price, in contrast to the constant jockeying by the local wholesalers who offer deep discounts when they have too much supply and then push up prices when they are running low. And yet, Agarwal complains that the Best Price store has also effectively become a competitor. That is because anybody with a valid business registration can buy from it, and the store has 50,000 member-customers.
As a result, in addition to buying supplies for their businesses, many people end up doing their household shopping there, too.