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

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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 

Colsa2
Colsa2

In all fairness 1 American farmer is worth several hundred Indian farmers. There was a little invention called a tractor that I doubt most of those 800 million have never seen, and that figure includes their families so it is really much less than 800 million. Otherwise you would have to count the wives and children of the American farmers too.

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.

Sudeep Kanjilal
Sudeep Kanjilal

 Yep, beautiful mom-and-pop stores, with retail-over-wholesale margins of 300%-400%.

And while politically connected middlemen make out like bandits, you, I presume, will be admiring the hundred of millions of starving children, who are getting killed by food inflation. When you tire of that view, perhaps you can shift your loving gaze towards the farmers committing suicide.

What a country. Even after 65 years of failed socialism, people still cling to these crazy policies. It would be sadly hilarious, but is immoral as it rests on the graves of starving millions

Colsa2
Colsa2

Yeah, cause a country rank with malnutrition due to inefficient mom and pop supply chains that spoil food is really the face of beauty and growth..

Do you find all starving children so beautiful?

beaverorduck
beaverorduck

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

Sudeep Kanjilal
Sudeep Kanjilal

 Nope. Both the countries are very very different. Walmart, Tesco, etc will bring in investments in cold storage, modern supply chain, retail management techniques, and cut out the highly inefficient middlemen.

Do you know, 30% of fresh produce  literally rots by the time they reach the market? Thats 30% lower income for farmers, or 30% higher prices for poor consumers

Abhishek Thakur
Abhishek Thakur

Agree! As per the policy 50% will be invested at backend.

Colsa2
Colsa2

Yeah, cause a country rank with malnutrition due to inefficient mom and pop supply chains that spoil food is really the face of beauty and growth..

Do you find all starving children so beautiful?

AngelAlonso
AngelAlonso

Anna responded I am dazzled that a stay at home mom can make $4552 in a few weeks on the network. have you seen this(Click on menu Home)

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.

Colsa2
Colsa2

Yeah, cause a country rank with malnutrition due to inefficient mom and pop supply chains that spoil food is really the face of beauty and growth..

Do you find all starving children so inspiring?

TyrantInShorts
TyrantInShorts

India's poverty has nothing to do with mom and pop shops and everything to do with foriegners invading and taking over the means of production and infrastructure and sending the profits back home while exploiting the locals. your crappy arguments wont hold here.

TyrantInShorts
TyrantInShorts

Its not a socialist argument to say that the biggest businesses operating in a country should belong to that country, its Patriotism. This is America's model and will suit India too, not foriegn takeover, which can soon turn into an attack on sovereignty.

Sudeep Kanjilal
Sudeep Kanjilal

 Are you nuts?

India's poverty is squarely to blame on its failed economic socialist policies. Its comforting to blame the British, but sorry - won't wash.

India started off along with HK, SK, China, Malaysia, etc. in 1950. Care of check where they are now?

To solve a problem, first, admit you got a problem.

Colsa2
Colsa2

Oh yeah, cause things went so well in the1980's under socialism.

You betray yourself as a commie. Cry me a river for your proletariat, then go drown in it

mamaotis
mamaotis

I don't find starving children inspiring at all, quite the opposite. Your Big Box BS isn't going to improve the situation for these children since taking food out of Walmart requires putting money on the counter. Money from where? Walmart doesn't give money away to anyone except the politicians who open the door to their dominance of markets. Other than that Walmart is taking money out of the country in the form of profits. So don't pick your nose in my presence while talking about starving children. It's a disgusting habit you may not even know you're doing.

mamaotis
mamaotis

I understand dividends, money which goes to stockholders for playing the market. The more proft Walmart makes the higher the payoff to these people, most all of whom live in places other than India itself which sees little economic flowback from dividend payouts. Additionally, any business large or small has to re-invest in itself so your point here is moot. The Waltons are one of the wealthiest families based in the US, ie billionaires a number times over. I can only assume this immense wealth has come from profits. You sound like a loyal Walmart supporter and I equally presume you have a vested interest of some sort in the further growth of this giant cobweb. Kind regards.

Sudeep Kanjilal
Sudeep Kanjilal

 Buddy, I heard the same tired old discredited arguments in 1991. At least have the intellectual integrity to admit that your kind of logic was wrong then.

Do you even know what margins retailers work on? Do you even have the understanding of retained earnings, and dividend?

Walmart, or any other firm, is 'not' into 'taking out profits'. They will be investing back, not only the profits they earn, but additional cash, into the market for decades, as they build out their stores.

Get a life

Colsa2
Colsa2

The Indian government already wastes lots of money on food for the poor in a very inefficient, corrupt program. If they directly gavre welfare for poor people to buy food at Walmart and other stores it would help a lot more people and save money.

Walmarts profits go to their owners. If you don't want it to leave the country then just buy some stock in walmart and stop complaining

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

TyrantInShorts
TyrantInShorts

Chinese goods stock the shelves at Walmarts in the USA. China currently has a symbiotic relationship with Walmart. India on the other hand will become a dumping ground for cheap Chinese goods. Walmart (and its type) offers no hope for buying local in India . It will destroy both homegrown manufacturing and local business. Its neo colonialism except this time, the colonial powers are large monopolistic corporations. This is of very little benefit to India except to convert its citizens into a bunch of Walmart greeters.

karur
karur

The Indian Government has imposed strict guidelines for a)percentage of local content and b) back-end investments in the supply chain for food products. Walmart will not have the same freedom as in the US and hence Chinese goods will be less obvious in india

TyrantInShorts
TyrantInShorts

Its just a matter of time before the rules get more and more relaxed. You know Indian politicians as well as I do. This could turn out to be neo East India, except that this is now something that the corporations are doing all over the world without exception.

Sudeep Kanjilal
Sudeep Kanjilal

 Can't agree with you more, buddy.

Actually, my mind boggles - only in India can we have this weird kabuki theater of debating need for reforms.

For 65, we tried the 'other way' with horrible results. for the past 15 years, we tried reforms, with more Indians lifted out of poverty than in past 100 years.

Yet, these  brain-dead socialists cling to those discredited ideas. Wish we could simply export them to North Korea - they would fit right in.

jay_sumr9
jay_sumr9

Small merchants will be "killed" and their future is only dependent on prostituting themselves for "Jobs". Welcome to the new ugly world. Courtesy of "Walmart and friends".

Colsa2
Colsa2

Small merchants are keeping Indian children malnourished

Prithvi Shiv
Prithvi Shiv

Doubt it. Most big retail chains in India are struggling to make ends meet. A recent survey by KPMG found that almost all large retailers still have no idea on how to woo customers-

http://www.kpmg.com/IN/en/Issu...

The biggest issue large chains need to address is that India is not a homogeneous market.  In the west these organisations can get away with a single strategy (for example discounting) and thus the enjoy economies  of scale advantage that comes with it; in India this will not work.

Also the organised retail sector in India is a mere 4% of the market, with the majority being dominated by mom and pop setups. These establishments enjoy a close rapport with their customer base because they can provide customised services and extend credit (which is very vital in India given the size of the population that is not affluent). Big chains will find it very hard to compete with these advantages.

For example the Subikhsa chain which had over 1600 stores at one time was forced to shutdown because they couldn't compete in this market. Not saying they will all fail, but they need to get a proper strategy in place first and there is space and scope for both the organised and unorganised sector to grow.

Frankly, India needs the back end investment in infrastructure that these large setups will bring. Especially if we are to make farming profitable again. None of these retarded *left wing types seem to realise the implications of this development, hence their populist opposition to it.

*edit ;).

Sadhu Swarup
Sadhu Swarup

I would like to add to what Sachi Mohanty has written. In 2002 Mr.Manmohan Singh was  against FDI in retail when BJP wanted to introduce it. That is politics of the economist! Now MMS has left the implementation to the states so that if it fails he has no part in it. If it succeeds (which is highly debatable) he can take the credit!

Prithvi Shiv
Prithvi Shiv

 Mamta is more left than the commies methinks.

Sachi Mohanty
Sachi Mohanty

...You mean 'left wing' types?

I though that NaMo guy was welcoming Walmart into Gujarat, no?

And Mamata is having heart attack about Walmart. Although she's 'opposed' to the Communist Left ...

Well may be I am confused about what is 'Left' and what is 'Right' ...

BTW: I got no axes to grind in this debate.

:)

sarahagg
sarahagg

Half the population is already living in the slums already. It can't get much worse for them. Maybe they will have an opportunity with Walmart to improve their lives.