Why India Should Stop Fearing Walmart

  • Share
  • Read Later

Customers shop at a Best Price Modern Wholesale store, a joint venture of Walmart Stores Inc. and Bharti Enterprises, in Jammu, India, on Nov. 26, 2011. (Photo: Mukesh Gupta / Reuters)

India’s Parliament is in the middle of a big political brawl over the issue of fully opening up its vast retail sector to foreign investors. It started last week, when the Cabinet approved a plan to open “multibrand retail” (i.e., supermarkets and stores that sell a variety of branded products) to 51% ownership, a move that has sparked a furious uproar in Parliament. The debate can be handily reduced to one question: Should India allow Walmart, the world’s biggest retail company, free rein into the world’s biggest untapped retail market?

The answer, according to opposition parties and even some within the Congress Party-led coalition, is an emphatic no — for the same reasons that Walmart arouses such ire around the world — the fear that faceless retail giants like Walmart, Carrefour and Tesco will crush the millions of small, family-owned kirana stores that dominate Indian retail. India’s leftist parties, suspicious of any foreign multinational, have called for a nationwide strike on Dec. 1 in solidarity with the Confederation of All India Traders, who are among the most vocal opponents of full FDI in retail.  The Hindu nationalist Bharatiya Janata Party (BJP), India’s largest opposition party, which once championed the opening of the Indian economy, is out in full rhetorical force. The BJP leader Uma Bharti publicly threatened to set fire to any Walmart that opens, a typically extreme position that even her allies on this issue have called “crazy talk.”

Perhaps she hasn’t noticed, but Walmart is already in India through the nine cash-and-carry stores it runs with its joint-venture partner, Bharti Retail (no relation to BJP’s Bharti). Walmart also supplies fruits and vegetables to more than 100 Bharti supermarkets.  TIME visited one of the cash-and-carry stores in Amritsar back in 2009, and the customers there were equivocal about this new kind of retail experience. It had a wider variety and larger quantity of some items, but lacked the personal touch. Here’s how one shopper described her affection for the local kirana shop owner:

“He knows us so well,” she says. “When my daughter went to America to study, he called to ask, ‘Madam, is your daughter not home? You haven’t been ordering cheese singles!’ If I run out of shampoo or detergent, I can just phone him, and he’ll send a boy with the stuff, free of charge.”

Her comment is a telling one; whatever the romantic image of the local corner shop, they are no model of gainful retail employment, operating in open defiance of laws against child labor and offering meager wages and no benefits to employees. The “boy” who delivers stuff free of charge is often, literally, a boy. Walmart’s international opponents have already lined up against them in India. Michael Bride, of the North American United Food & Commercial Workers’ International Union, said in a statement, “We have seen the devastating effect that Walmart has upon workers, suppliers and small retailers, and we have a serious concern that, absent the right controls, the unfettered entry of Walmart to the Indian market could have devastating effects upon numerous stakeholders.” But this concern is misplaced. Small retailers in India already operate with such low overhead costs (by relying on informal labor and making minimal investment in any technology, even refrigeration) that it’s hard for Walmart to compete with them. (India’s traders have, however, invested in their relationships with state and local politicians, who count on their support around election time.) Elsewhere, Walmart may have pioneered the use of low-cost retail labor; in India, the cost of labor in retail is already about as low as it can get.

More important, the debate over Walmart’s effect on retail employment misses a larger point. In India, the majority of the population is employed in agriculture, and Indian farmers stand to gain a lot from greater investment by anyone — foreign or domestic — in the supply chain that brings food from the field to the consumer. And food is the reason that Walmart wants to be in India. I interviewed Walmart executives in India for a story about Indian agriculture earlier this year, and they were very clear on that point. Indians are in the habit of shopping for their fruits and vegetables almost every day, and that’s tantalizing — get the customer into the shop every day, and chances are she’ll buy something extra. Building a Walmart-style supply chain of fruits and vegetables requires a lot of investment in improving the productivity and quality of farmers. Sometimes, those improvements are as basic as showing a tomato farmer how to improve his yields by using wooden stakes for his plants. That farmer doesn’t have to sell his tomatoes to Walmart, but when he sees that he can get a better price, he often does. To woo farmers away from the system they are used to — selling produce at the local mandi, or market, at a price dictated by traders — Walmart has set itself a target of increasing farmers’ incomes by 20% over five years. That’s exactly the same strategy adopted by much smaller players, from rural NGOs to start-ups to social entrepreneurs: help farmers improve their productivity, so their incomes rise and consumers get better-quality produce. One easy fix that they have all used is to pick up the produce close to where the farmers live — the buyers get fresher produce while the farmer doesn’t have to spend as much money on transportation.

The Indian food supply is so vast and so neglected (most farmers don’t even have irrigation, let alone access to cold storage) that there is room for all of these players. Even if Walmart reaches its goal of building a network of 35,000 farmers by 2015, that’s a tiny fraction of India’s labor force of 450 million. India might be the only place in the world where even Walmart has trouble achieving scale.

Whether it does or not, the one system that is not working for Indian farmers is the current one. You can see it on display in the Azadpur mandi on the edge of New Delhi. This is a huge wholesale fruit-and-vegetable market supported by the Indian government’s “mandi tax.” By law, farmers are required to sell their produce only to approved mandis. (Walmart has to pay the mandi tax even when farmers sell to them.) They travel for hours to get here, and once they do, they have to take whatever price the wholesale buyer is willing to give. The buyers don’t inspect the produce and offer better prices for better quality; they just sell the 100-kg sacks of vegetables to another set of middlemen, who break it into smaller lots that eventually find their way to vegetable vendors and the capital’s thousands of small retailers. By the time it reaches the consumer, that produce will have been marked up by three to four times or more, but nearly all of that goes to the middlemen, not the farmer. Meanwhile, about 30% of the produce also spoils along the way for lack of cold storage, contributing to India’s soaring food inflation.

India’s traders and kirana shop owners have had more than six decades of protection from foreign competition, during which they have done little to improve the food supply for farmers on one end or consumers on the other. It’s not surprising that they and their political allies object to anything that might change that.