Open up India

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Open Markets, Open Minds

N D Batra
Aug 10, 2010, 12.00am IST
Times of India

Every year, India waits for a bountiful monsoon not only to cool people from the sweltering heat but, more importantly, to chill food prices so that the common man can feed his children healthy meals. A good monsoon can make a difference of 7 to 10 per cent in food prices and that means a lot to a middle-class Indian family with school-going children or a day labourer working on a construction site. Last year's bad monsoon spiked food inflation by double digits this year.

But since India cannot always depend upon the generosity of the rain gods, it can certainly use the efficiencies of organised retailers like Carrefour, Tesco, Walmart and others to bring down the prices of daily essentials including groceries. A few years ago, West Bengal chief minister Buddhadeb Bhattacharjee asked at a meeting of business leaders in Kolkata, "Why do we need Walmart to come?" The answer is simple: bringing down prices of daily essentials is good for every politician, regardless of ideology.

Food subsidies through rationing create a feeling of dependence and hurt the poor's self-respect. Moreover, as a recent discussion paper by the ministry of commerce and industry emphasised, "The bill on food subsidies is rising. In spite of such heavy subsidies, overall food-based inflation has been a matter of great concern. The absence of a 'farm-to-fork' retail supply system has led to the ultimate customers paying a premium for shortages and a charge for wastages."

Eliminating wastage through a modern cold storage and supply chain system that an organised retailer like Walmart can provide will bring down prices by 5 to 7 per cent. But the question is: will Walmart eat up the lunch of millions of entrepreneurs, middlemen and small shopkeepers? Very unlikely, for the simple reason that the retail space in India is growing at a very fast rate. According to the BMI India Retail Report for the third-quarter 2010, retail sales are likely to increase at the annual rate of 11.4 per cent for the retail industry to grow from $353 billion in 2010 to $543.2 billion by 2014. India is not a dog-eat-dog world. In a growing India, everyone can grow.

The world's biggest retail and grocery giant, Walmart, sells almost everything and at the lowest prices, providing low-income and middle-class people affordable access to goods which would be otherwise beyond their tight budgets. Small entrepreneurs are, of course, the backbone of the Indian economy but instead of being overly protected, they should be gradually exposed to the challenges of marketing innovations of Walmart, Carrefour and others. Entrepreneurs thrive best in an environment of challenge-and-response. In the process, some creative destruction as economist Joseph Schumpeter termed it is inevitable.

Due to the fact that incomes are rising and the middle and upper middle-class consumer is eager to use a credit card, retail opportunities in India are expanding rapidly even in second and third-tier cities, according to the BMI report. Even if India's huge retail market grows modestly, let's say at the same rate as India's GDP (8-9 per cent), modern retailing practices must be built up to satisfy the demand of the growing populace. The government allows 51 per cent foreign direct investment to companies that sell goods through single-brand stores. Through its Bharti franchise, Walmart, for example, found a narrow passage to India but time has come to open India's doors more widely and let the competition begin so that even the poorest can benefit from its "always low prices". Open markets create open minds.

India is not only a huge growth market for Walmart, but it is also a fast-growing outsourcing market, with an expected $1.6 billion merchandise export to Walmart International this year. But that is puny compared with what Walmart buys from China $28 billion according to some estimates and, besides, it has created many entrepreneurial opportunities in China by establishing a most modern supply chain system.

Policymakers should focus their attention on not only how Walmart will trigger a retail revolution in India but also whether India could become another outsourcing hub for the hungry global giant which has 4,008 stores worldwide, including 66 in China. The retailer is able to achieve efficiencies by buying massive quantities from inshore and offshore sources. It helps farmers to provide better produce to meet its international standards, as it is doing in Punjab.

Walmart hires workers at competitive wages, though some say at the lower end, especially women employees (a sex discrimination class-action lawsuit has been allowed to proceed against the retailer in the US). Discrimination is an unacceptable practice in American society and that's how it should be in India, whenever a foreign company is allowed to do business. Just and fair labour practices established in the US should be followed when the government allows Walmart and other multinationals full entry into India. Low prices, non-discrimination, technology transfer, if that's Walmart, Carrefour or Tesco, welcome to India.

The writer is professor of communications and diplomacy at Norwich University, US.

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