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TRADE-INDIA: Wal-Mart Gets a Foot in the Retail Door

Paranjoy Guha Thakurta

NEW DELHI, Nov 30 2006 (IPS) - A decision by the ruling United Progressive Alliance (UPA)government, this week, to allow the entry of Wal-Mart Stores into India’s closed retail business has come up against opposition from not only the nationalist Bharatiya Janata Party (BJP) but also its own communist allies.

The Arkansas, United States-based Wal-Mart, the world’s largest retailer made it by dint of partnering Bharti Enterprises, one of the country’s leading corporate groups with a strong presence in telecommunications.

While the communists, who provide crucial outside support to the minority UPA government, allege that Wal-Mart has been allowed to make a “backdoor” entry by exploiting loopholes in the law, the BJP is anxious to protect the interests of small traders who have been its staunchest supporters.

Although foreign equity holding in Indian retail firms is disallowed, the Indian government at present permits 100 percent foreign direct investment (FDI) in companies that engage in wholesale trading or ‘cash and carry’ operations. In other words, goods can legally be sold for cash on a wholesale basis to a corporate entity that is not the end-user but has a valid registration certificate to the effect that it pays sales tax to local authorities.

In February, the government relaxed its regulations by allowing 51 percent foreign equity in Indian retail firms provided they restricted business to a single brand. Whereas certain international retail organisations (like Metro AG of Germany and ShopRite of the U.S.) have preferred using the cash and carry wholesale route, others like Dairy Farm and Marks & Spencer have made their entry through franchising with local partners. Indian garment and textiles companies like Arvind Mills and Madura Garments now have marketing alliances with owners of international brands like Tommy Hilfiger and Esprit.

Those opposed to the Wal-Mart collaboration with Bharti claim foreign companies are seeking to use the joint-venture route to circumvent regulations. “This is nothing but backdoor entry into the retail trade using an Indian company as a front organisation,” D. Raja, national general secretary of the Communist Party of India (CPI) told IPS in an interview. He added that his party had sent a note to the UPA government urging it not to allow Wal-Mart to come into India.

India’s Industry and Commerce Minister Kamal Nath has a different point of view. He told journalists the day the Wal-Mart-Bharti tie-up was announced: “What is permissible is laid down in the regulations. So long as they (meaning Wal-Mart) do not do retailing, whatever model they follow, investment in logistics, cold chainà is perfectly all right.”

The largest left party, the Communist Party of India-Marxist (CPI-M), expressed the view that the government was gradually paving the way for FDI in retail trade. In a statement the party said: “Expansion of the Wal-Mart chains has caused massive closure of small stores and pauperisation of poor communities even in the U.S. In the context of the massive unemployment existing within the country, such employment-displacing FDI is the last thing the Indian economy needs at this moment.”

Not everybody is opposed to foreign investment in retail. “In my opinion, companies like Wal-Mart possess expertise that India needs to efficiently manage food supply chains,” Vivek Bharati, adviser on national policy to the Federation of Indian Chambers of Commerce and Industry (FICCI), told IPS. He added that the Indian retail market was expanding rapidly and given the locational advantages of small stores, it was unlikely that mom-and-pop shops would have to close down. “India is not America where shoppers are willing to travel distances to supermarkets and malls – people here won’t reduce their dependence on local grocery stores,” Bharati adds.

The FICCI adviser points out that for the Bharti group, a tie-up with Wal-Mart makes good business sense since it has already set up a joint venture with the Rothschild-owned Field Fresh Foods, to market a range of agricultural products. Sunil Mittal, who heads Bharti Enterprises, told mediapersons on Monday that a “master franchise agreement” allowing the Bharti group to use the Wal-Mart name for its retail stores, supermarkets and hypermarkets would be finalised by January.

Bharti said several hundred Wal-Mart stories would start functioning in different parts of India over the next five years. Wal-Mart is currently sourcing goods valued at roughly 1.5 billion US dollars from India. This figure could jump to 10 billion dollars over the next few years.

India is the world’s second most populous nation and its economy has grown at an impressive annual rate of 8 percent over the last four years. The country’s retail market is among the top ten in the world, estimated to be worth around 220 billion dollars or close to one-third of the country’s gross domestic product. More significantly, the organised segment of the total retail market in India is worth barely 7 billion dollars or around 4 percent of the total market. In other words, around 96 per cent of retail sales in India take place through some 12 million small shops and retail outlets.

Raja of the CPI, who described Wal-Mart as “notorious” for its “exploitative labour practices”, claims the entry of large international retail companies would marginalise existing shop-owners and shrink job opportunities. “An estimated 40 million Indians work in retail outlets and we don’t want their livelihood to be adversely affected,” he said.

While the proponents of FDI in retail argue that jobs will not be lost and that consumers would gain from lower prices of goods, wider choices and consistent product quality, Wal-Mart’s critics in India contend that the company’s track record in various countries do not inspire such confidence.

The ability of large international retail chains to sell products at low prices is often attributed to their efficiency in sourcing goods from the lowest cost producers, but the other side of the coin is that their so-called efficiency in better management of inventories and costs is a consequence of their brute monopoly power to squeeze relatively poor producers. In India, the debate has just begun.

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