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Indian Retailers on Edge as 800-Pound Gorillas Come Knocking – Part 1

WASHINGTON, Jan 31 2012 (IPS) - Home to over 44 million small retailers, many of them family- owned, neighbourhood stores no bigger than 200 square feet, India is a land renowned for its various “wallas” – small traders who produce, hawk, repair or deliver just about anything you could want at any hour of the day or night.

A Walmart in Beijing. Credit: galaygobi/CC By 2.0

A Walmart in Beijing. Credit: galaygobi/CC By 2.0

But a recent push by some of the world’s biggest multinational corporations (MNCs) like the U.S.’s Walmart, Britain’s Tesco and France’s Carrefour to enter India’s 450-billion-dollar consumer market could signal the swan song of the country’s traditional and beloved small business sector.

Earlier this year, intense public opposition halted the Indian government’s decision to open the sluice gates to increased foreign direct investment (FDI) from single- and multi-brand retailers, prompting a spate of heated debate about the possible impacts of such a move on the economy.

Though the final decision to allow unchecked investment in a hitherto protected sector has been tabled, the battle for small retailers is far from over.

Formerly lucrative markets in Western Europe and North America are drying up, the spending capacity of their middle classes exhausted by years of consumption from the very businesses that are now banging at the gates of fresh marketplaces in the global South.

As one financial crisis after another crashes over the developed world, MNCs are looking elsewhere: in the townships of South Africa, along the banks of the Amazon, in the favelas of Brazil and now in India’s urban centres, which are teeming with over 169 million potential customers in just 53 cities.

History repeats itself?

When Walmart initially began its campaign to penetrate the Indian market, its website promised to provide the country’s “underserved” market with a wider range of goods at lower prices, while increasing efficiency, reducing waste and creating jobs.

But a closer look at the “Walmart effect” in the birthplace of the world’s largest private employer pulls back the veil on a less rosy reality.

“The proliferation of Walmart across the U.S. has led to the lowering of income of over a million workers,” Deidre Griswold, a former U.S. presidential candidate and editor of the Workers World newspaper, told IPS.

“It has the world’s biggest computer (system) and the largest fleet of trucks, both of which it touts as examples of its productivity. But what is the use of increased productivity if it’s not coupled with more leisure time and better salaries for workers?”

The average “sales associate” at Walmart earned less than 250 dollars a week, an annual income that lies well below the U.S.’s official poverty line for even small families.

“Walmart reflects the central problem with capitalism, where ‘productivity’ only means bigger profits for capitalists and further exploitation of workers. Most Walmart employees are only hired on a part-time basis, making it impossible for them to claim unemployment benefits even though they barely earn enough to survive,” Griswold added.

Furthermore, the lack of formal employment contracts for a majority of employees “effectively crushes workers’ collective bargaining power and destroys what is left of the unions”.

Walmart has also been proven to decimate local economies.

According to some estimates, for every Walmart that opens, 100 stores in the area are forced out of business.

Ten years after Walmart arrived in Iowa in 1990, “the state lost 555 grocery stores, 298 hardware stores, 293 building supply stores, 161 variety stores, 158 women’s apparel stores, 153 shoe stores, 116 drugstores, and 111 men’s and boys’ apparel stores.”

The Economic Policy Institute (EPI) found that Walmart was responsible for 27 billion of the U.S.’s 235-billion-dollar trade deficit with China in 2006. The total deficit accounted for 1.8 million lost jobs, of which Walmart was singlehandedly responsible for about 200,000 as a result of its imports from China.

Roughly 133,000 of these were manufacturing jobs, one of the few sectors that provides benefits and offers decent pay to U.S. workers with less than a college education.

Each of the 4,022 stores Wal-Mart operated in the U.S. resulted in 77 workers losing their jobs, mainly because of the company’s huge deficit with China.

Its ability to impact so heavily on international trade has effectively made Walmart a nation unto itself – already its yearly profits exceed the annual GDP of Norway, the 25th largest economy in the world.

Critics contrast Walmart’s success with the overall deterioration of the standard of living in the average U.S. household, 17 million of which were food insecure in 2010, the highest number ever recorded in the U.S. according to the World Hunger Organisation’s annual report.

India – even more vulnerable?

If a single corporation has the power to render hundreds of thousands of workers jobless in the one of the world’s wealthiest countries, it is not too difficult to imagine MNCs’ impact on India, already home to well over 400 million poor people by the most conservative estimates.

According to Jayati Ghosh, an economist at the premier Jawaharlal Nehru University in New Delhi, every job Walmart offers in India will come at the expense of 17 or 18 small traders and their staff.

With joblessness already on the rise (total employment growth dropped from 2.7 percent between 2000-2005 to just 0.8 percent between 2005- 2010, according to the latest National Sample Survey), many argue that India can ill afford to open its doors to mammoth corporations.

A quick assessment of employment patterns among three leading MNCs debunks the Indian ministry of commerce’s promise to create four million jobs through its relaxation on FDI in three years.

Tesco boasts upwards of 490,000 employees in 5,380 stores worldwide; Carrefour has just over 471,000 workers spread over 15,937 stores; Metro, with just 2131 stores, hires 283,000 people annually; and Walmart operates 9,826 stores staffed by roughly two million people.

“If four million jobs are to be created in India, Walmart (which averages 219 employees per store) will need to open over 18,600 supermarkets in India,” Ghosh said. “If the average of the four retailers (above) are considered, i.e.: 117 employees per store, over 34,180 supermarkets have to open in three years, or 644 supermarkets in each of the 53 cities.”

In an apparent attempt to “protect” small retailers, the Indian government stipulated that companies entering the market should invest a minimum of 100 million dollars, thereby supposedly ensuring that foreign businesses would not compete with small local stores.

But given that Walmart’s annual revenue is almost 400 billion dollars, it could easily set up a network of small- and medium-sized stores to meet the needs of a diverse clientele and thus nudge domestic retailers out of the picture.

Ghosh also stressed the risk of Walmart buying out local private sector retailers in order to secure the necessary monopoly with which to completely dictate terms in a newly acquired market.

“This is how the global retailers have expanded their operations in many developing countries in Latin America and Asia,” Ghosh said.

For example, “Walmart entered Mexico in 1991-92 with a 50-50 joint venture with the local firm CIFRA. By 1997 it had acquired majority stake in the venture and increased its stake to 60 percent in 2000. By 2004, Walmart alone accounted for over 25 percent of all retail sales in Mexico and 43 percent of all sales by the big box retailers.”

If, like the average Indian consumer, the government wants to protect the diversity and history of its smaller traders, it will have to sacrifice Walmart in order to safeguard its ‘wallas’.

*This is the first of a two-part series on Indian retailers’ fight against Walmart and the corporation’s economic and social legacy in the United States.

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