Walmart?s Chinese experience shows how, rather than overpowering domestic suppliers, it in fact helped them
The politics and economics of foreign investment in multi-brand retail has the potential to seize the imagination of large sections of India?s urban middle class and the farming community in the run up to the 2014?or earlier?elections. The UPA has done well to create a robust debate around the question of the benefits or otherwise of allowing foreign investment in Big Retail. There is a new political polarisation happening around the issue of FDI in retail. Extreme views are being expressed, with one section of the mainstream political players saying FDI in retail will behave like a ?latter day East India Company? which will destroy the sinews of the local retail economy. Questions have been raised about the fate of some 12 million small grocers and retailers (this figure does not include streetside vendors) whose livelihood may be threatened. The Congress party has argued that investments in the back-end supply chain by Big Retail will cut waste in food items such as fruits and vegetables and will get much better prices for farmers and consumers.
Interestingly, the BJP?s ally in Punjab, Akali Dal, has said FDI in retail would be good for the farmers. Akali Dal has a strong support base among Jat farmers in Punjab. They should know. There could be polarisation along the lines of farmers versus small retailers. Needless to say, farmers clearly outnumber small retailers in the country by several times. Small retailers have been the BJP?s backbone from the very beginning.
Polarisation around FDI in retail is such that the BJP has begun to sound more and more like the Swadeshi Jagran Manch (SJM), an RSS outfit, which had great influence on the party?s economic policy before Atal Bihari Vajpayee took over as Prime Minister. In fact, Vajpayee?s era, which sought to make the BJP economically modern, also witnessed the fading away of some of the rising Swadeshi ideologues exported by the RSS to the BJP leadership. The RSS-sponsored Swadeshi group was always present as a pressure group, but Vajpayee had pushed it into the background for a long time. In the absence of a strong Vajpayee-like leadership, these Swadeshis appear to be back with a bang in the BJP. Suddenly, the BJP sounds like it did in the ?80s and ?90s.
Arun Jaitley?s statement that FDI in Big Retail will convert India into a nation of sales boys and sales girls, with ownership of enterprise shifting to the West, is typically reminiscent of the thought process generated by the SJM in the 1980s. Was Jaitley even conscious that he was, at some level, denigrating the vocation of sales boys and sales girls? Some of the heads of consumer companies proudly proclaim themselves to be salespersons first. So what is wrong with selling? Even Jaitley, for that matter, is selling an idea by opposing FDI in retail!
Politically, the Congress has forced mainstream parties to take a position on a bigger question: does the young Indian voter want greater engagement with economic globalisation or not? The fact is, young Indians are already thinking globally, what with access to new technology-driven media. They take globalisation for granted.
The BJP is playing on the fears of a ?latter day East India Company? because the economy is going through a severe downturn and the party leadership thinks the attendant frustrations of the people can be mobilised around the anti-FDI sentiment. It might be making a big mistake in doing so.
The BJP will find it difficult to convince people that Big Retail will wipe out small stores. Simply because the ordinary consumers have personally experienced how the Big Retail players like Reliance, Tatas, Birlas, Future Group, Godrej, etc, have increased their choices through competition. By and large, the advent of Big Bazaars and Spencers has forced the small neighbourhood stores to reinvent themselves and become more efficient. This is the consumers? first-hand experience. So, politicians can?t mislead them.
As for the big domestic retailers? own performance, all of them are losing money. Together, the six or seven big players have an annual turnover of over R25,000 crore, and almost all of them are losing over R200 crore a year.
One big learning experience for the big retailers is it is very difficult to create a comprehensive back-end procurement infrastructure for vegetables, fruits and other agri items because the farmers are far too scattered and fragmented. So, it is difficult to penetrate beyond a point. And the fragmented players actually have large volumes. The back-end problem naturally affects the front-end activity also. The big retailers have not bettered the customisation skills of the neighbourhood store and the sabziwala who comes on a cycle cart. So, this problem will surely be faced by the Walmarts and Carrefours.
Interestingly, China?s experience is similar. Walmart entered China some 20 years ago and has opened 350 stores till date. Walmart?s own philosophy is that it must become the biggest player wherever it goes, nothing less is acceptable. But in China it just has a 5% market share after two decades. The local Chinese retail companies such as Shanghai Bailian Group, Suning, Gome and Dashang are all bigger than Walmart. In that sense, Walmart has not succeeded in China.
However, the Chinese cleverly used Walmart and Carrefour to increase competition and efficiency, create rural agricultural infrastructure investments and drive huge exports as China accounts for over 60% of Walmart?s global procurement. So, the fear of foreign investment in retail destroying the local economy has been proved wrong in China. The fact is that China showed confidence in the ingenuity of its own people. India must also do the same.
mk.venu@expressindia.com