How the Entry of Walmart and Big Retail Chains Will Change India

The Indian government's decision to open up its retail sector will have far-reaching consequences for its billion-plus population

  • Share
  • Read Later
Saurabh Das / AP

Employees arrange products at a Bharti Walmart store on the outskirts of Chandigarh, India, on Sept. 16, 2012

Has Manmohan Singh got his mojo back? The Indian Prime Minister has recently suffered the indignity of being called “overwhelmed and out of steam” in the Indian magazine Caravan; a “dithering, ineffectual bureaucrat” by the Washington Post; and an “underachiever” on the cover of TIME.

And yet, there he was on Sept. 14, boldly pushing a major economic reform that would open up India’s vast retail market to greater participation by foreign companies. Singh tried the same move last fall, only to be shouted down by populists within his coalition, who threatened to bring down the government, claiming that the measure would threaten the livelihood of small shopkeepers. Unable to make his case, Singh backed down. This time, he all but dared them to call his bluff. Who’s dithering now?

(MORE: India Allows Walmart and Friends in)

What looks like boldness is actually a deft finesse from a leader who has rarely been comfortable playing the role of politician. By leaving the implementation of this new reform up to the country’s states, Singh avoids having to push too hard while still getting credit for taking a proreform, progrowth stance that plays well with the foreign investors who have cooled on India.

It’s a canny move. States with big urban centers and enough middle-class consumers to actually shop at foreign retail outlets are likely to move forward on retail reform. Poorer, less urbanized states and those where India’s traders and merchant castes are politically powerful can opt out. So far, the two most vocal critics of the new measure are ideological opposites — Mamata Banerjee, a left-leaning populist, and Narendra Modi, a right-wing Hindu nationalist who styles himself as a business-friendly reformer. The rest of India’s ambitious chief ministers will end up competing with one another for a limited pool of big-ticket investment, creating an incentive to implement the reforms quickly.

(MORE: The 2012 TIME 100 — Mamata Banerjee)

Once the reforms take hold, India could see some profound changes. India lacks the infrastructure like refrigeration and warehousing that most big retailers are used to, so Walmart, Carrefour, Tesco, et al. would have to build it themselves. That would benefit the entire retail-supply chain in India, decreasing spoilage and reducing time to market. To take advantage of economies of scale, those retailers will also — as Walmart does now on a limited scale — deal directly with farmers.

Don’t be fooled: these big-box stores will not suddenly replace India’s mom-and-pop stores by undercutting their prices. That’s the experience of retail in the U.S.: the small retailers that once served the middle classes could not match Walmart’s much lower prices. The Indian retail market is different. Yes, they may be locally owned, but those small retailers keep their prices low because they use only the cheapest possible casual labor and invest next to nothing in their stores. Prices cannot get any lower; in India, Walmart can compete only by offering higher prices — and better quality to attract the middle-class consumers who are able to pay. A handful of Indian big-box retailers and high-end specialty stores are already using that strategy.

The same goes for farmers. Under the current system, they are forced to sell their produce in government-supported wholesale markets where they have no pricing power at all. If big companies like Walmart enter the market, farmers can only benefit from the competition for the goods they supply.

Of course, no single company or single piece of economic reform has the scale to transform the lives of 800 million struggling farmers. Once Walmart is a full-fledged part of India’s market, it will become clear that even the largest company in the world isn’t big enough to change India. It will take broad-based change — in everything from water and electricity to education — to lift their livelihoods. Singh’s bold move is just a small first step.

48 comments
aritra gupta
aritra gupta

I am no economist but as a middle class consumer, I would not dislike it if giants like Walmart come to India.

The so-called mom and pop stores are mostly worthless; many don't store more than a few common items, in many cases their wares turn out not of the best quality or sometimes expired and rotten. The few good ones do not have the money to make a world class marketing experience available to us (and  by that I mean good wares with lots of choices, not a air conditioned or music-playing glass-fitted premises)

The Mom and Pop stores will not lose out if some reasonable restrictions are imposed on the giants, eg how many stores allowed in the rural areas, extensive study of the cities whereby mostly residential and "traditional" districts are demarcated and made "mom and pop area only" etc. And its not as if the MNC's aren't going to absorb some mom and pop store people...they do need veteran marketing campaigners and who better available?

vimal_mp
vimal_mp

IT has both positives and negatives. In the long run storage infrastructure will improve but farmers will suffer. one needs to go and see the research in the US on the percentage of sales realisation that was plowed back by the giant retailers to the farmers. Initially it was high but as the years went by it progressively got lowered and today is at a low.

The objective of getting better storage infrastructure could have been solved through public sector corporation or semi private bodies established for the specific purpose of putting up silos etc. A perpetual with tax savings could have been floated in the local market to get thefunds required. teh cost of storage could have been determined througha formula linked to guaranteeinga return of say 10 -12% on capital invested. Everyone would have been happy except the government which is desparately short of ideas to revive its own image and the economy.

vimal_mp
vimal_mp

IT has both positives and negatives. In the long run storage infrastructure will improve but farmers will suffer. one needs to go and see the research in the US on the percentage of sales realisation that was plowed back by the giant retailers to the farmers. Initially it was high but as the years went by it progressively got lowered and today is at a low.

The objective of getting better storage infrastructure could have been solved through public sector corporation or semi private bodies established for the specific purpose of putting up silos etc. A perpetual  with tax savings could have been floated in the local market to get thefunds required. teh cost of storage could have been determined througha formula linked to guaranteeinga  return of say 10 -12% on capital invested. Everyone would have been happy except the government which is desparately short of ideas to revive its own image and the economy.

Nirmal Kant Dalapati
Nirmal Kant Dalapati

INDIA KO AAGE BADHNA HAI, PAR APNE DUM PAR, NA KISI WALLMART YA AUR KOI, INDIA KO INDIA REHNO DO WESTERN... MAT BANAO.

MYusuf Advani
MYusuf Advani

Walmart employs a few thousands and millions lost job.As bearorduck had said " Walmart will change India the same way it changed life in America. It will ruin it"

In India most of the chronically poor are wage earners in formal. Productivity appears to have a negative impact on job creation. Our present Govt. denied FDI in multi-brand retailing untill, 2011 and announced retail reforms for both multi-brand and single-brand retailing in November,2011.

India is one of the top five retail market in the world by economic value and one of the fastest growing retail market in the world with 1.26 billion people.

Indian born Nobel prize winning economist Dr.Amartya Sen says-FDI in multi-brand retail can be good thing or bad thing depending on the nature of investment. Other Indian leaders have their own comments. Our PM has defended,hike in diesel rate,limiting domestic gas refills to 6 per year and also retail reforms.

Let's see how the present decision allowing FDI in multi-brand retailing will help common Indian and what is the impact on local employment.

TyrantInShorts
TyrantInShorts

Walmart and large multinational corporations will turn India into Latin America. Hey if they can do it to North America, they most certainly can do it to India!

Elise Noel
Elise Noel

This is a horribly written article with very bad research. Firstly, the cost can ABSOLUTELY get lower in India. If Walmart buys directly from farmers like it says it would, the cost will change dramatically considering that retailers now mostly buy from a middle man which charges (usually) at least a 100% margin. Secondly, if India wanted refrigerated retails structures, it has PLENTY of billionaires who could invest in this idea on our own. Lastly, if we diverted  back to growing agriculture/making our own products within our own communities, there would be plenty of food, less refrigeration/power would be needed, more people would eat etc.

As an American living in India, I would just like to say to those Indians on the fence about this issue, that the challenges Walmart will create are immense. Walmart has destroyed American small business, treats its employees awfully and will find a way to make the most profit possibly and not care who or what it hurts along the way. Walmart opened 45mins away from my parents house in Northern California and within that 45 minute radius, there are ZERO small agriculture/clothing stores left. 

Saleem Quadri
Saleem Quadri

Why doesn't the Government of India and the Congress party explain the reasons and effect of this model?

Chhajuram Induscharwak
Chhajuram Induscharwak

Big retail chain bound to change India. Indian corporates already in retail but doing nothing for infrastructure in this field now have to multiply their efforts. Parasites as mere mediocre are bound to wash. Absence of mediocrity  certainly help Indian farmers and they will get better price for their product. Consumers get maximum benefits in case of price as well as quality. Genuine service provider pop and mom store bound to remain intact hence it is only black marketeer bound to wash.   

bappai
bappai

The main thing that this reform has done is that it will only line the pockets of the large retailers who have now some huge debt ( read Biyani ji of Big Bazaar and such )  and will kill the mom and pop store owner Gupta ji. If u really want to open up then open 100% and not 51% let the Walmarts have head on collision with these so called large business men here. If that helps the consumers so be it. The policy is going to kill small owners and will only help those people who can oil certain sections of the government. 

What an economic theory of Manmohan Singh and his cronies. His cronies require up 6 million to build a toilet and 75% of national resources is given out through coal allocation to private parties for FREE. Otherwise a wise auction could fill the government coffers.

 He is only there to fleece the common man and make stock prices of corporations grow. If this is what is governance through democracy then probably we better have an alternative form of governanace. 

Sachi Mohanty
Sachi Mohanty

...

Whoa! India has got 800 million farmers ?!?!That is nearly THRICE the TOTAL population of the United States! Or twice as many as the total number of people living in Europe!I find those numbers quite SHOCKING. And I live in New Delhi....Twitter: @sachi_bbsr:twitter 

godsfly
godsfly

All over the world is Walmarted, the beauty amp; growth at grassroots in India are these small Momma amp; Pappa stores, if you wipe them out then India will also be another faceless Asian country. We all know about Walmart and how good they work in countries like Mexico. Its a huge price to pay.

beaverorduck
beaverorduck

Walmart will change India the same way it changed life in America.  It will ruin it.

mamaotis
mamaotis

Walmart has strong ties to BigAg GMO crop production and so these companies (ADM - Monsanto - Synergy - Cargill - among others) have found yet another means of infiltrating the India market with GMO products that are questionable in their health effects.

Small independent farmers and retail shops will take a bad hit if they are in the vicinity of a Big Box Store and poverty will increase rather than decrease. This is about globalist corporations disenfranchising the 'little guy' thus coralling economic power into the hands of the multinationals. Time has tried to put a rosy spin on this but I don't buy it.

Neel Mitra
Neel Mitra

I honestly think, Walmart or any other global retail company would find it tough to ease into the Indian market. Walmart may offer cheap prices, but I'm pretty sure their prices would still fail to attract the majority in India. They might even pull out after a few years, with low pay-offs year in and year out. Yet, I'll say it's tough to judge the fate of these new incoming companies and the impact which they'll have on the indian economy so early. As for India it indeed is a "small first step" on it's journey to reform!

karur
karur

If multi-brand retail through the Walmarts and Tescos was so bad, why did China embrace them? India has some old-school lefties who are completely out of touch and have romantic ideas about socialism/communism etc and have biased views about US firms. Sure, Walmart will come into India to make money and not donate refrigerated storage to stop fruits/vegetables rotting. But, a nation that produces the largest tonnage of fruits and vegetables, allows 50% to rot! India said the same kind of things about mobile phones and now the largest benefits are enjoyed by the poor in rural India. It is high time that India moves with the times and allows a true visionary, Dr. Singh to do his job. Afterall, nobody can deny that India is a better place thanks to his vision