Should we fear Wal-Mart?

Wed, 26 Sep Pre-Open

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The Government's decision to open up retail sector to foreign investors has stirred up a debate throughout the nation. On one positive side, there is a promise of a boost in the organized retail employment. Also, entry of foreign retailers in the India is likely to create job opportunities for the other sectors in the backward and forward value chain. Some of these are infrastructure, logistics and farming. With agriculture being the biggest employer in domestic economy, the country stands to gain a lot. Currently, the farmers use minimal technology and sell their produce either at the local mandi at prices dictated by traders. It is because of the poor logistics and technology that a huge portion of the farm output gets wasted. With the entry of players like Wal-Mart, we expect a cut in transportation costs for the farmers, better prices for their produce and less wastage due to superior technology and logistics. Not to mention wide choice and lower prices for end consumers.

On the flip side, there is a fear that the giant global players will crush the local retailer and kick him out of business. Some are afraid that in the long run, they will command a share of the Indian retail pie. So much so, that it may push down the prices paid to farmers and wages to employees. Wal-Mart, within three years of its entry in Chile managed to grab 34% of the entire market. What is the surety that this won't repeat in India, letting it expand to a size that it can dictate supplier's contracts, quality, quantity and price. This will kill competition and encourage monopoly. Something that doesn't fit well with the intent of liberalisation.

So the big question is: Should Wal-Mart be given a free reign in India? Before rejecting the option outright, we need to consider the fact that all these years of protection in retail have done little to benefit farmers or the consumers. There has been little innovation in the way we retail. Instead, the protection has bred complacence and inefficiency. While food prices are just getting higher, more and more food is getting wasted due to lack of proper storage, technologies and damage during transportation. The only person making gains here is the middlemen enjoying all the mark up.

The entry of Wal-Mart might not favor the interests of middlemen and kirana stores.

However, it is a step in the favour of shoppers, farmers and a huge segment of Indian population that indirectly stands to benefit. The opening up of multibrand retail is likely to curb end product prices helping the poor and easing the inflation. Besides, it will boost up India's image; speed up the multi modal logistics revolution and investment in infrastructure. The country needs all of this currently. As far as fear of big retailers abusing their dominant positions and displacing the supply chains is concerned, the Government can address it my keeping proper checks and balances in place (for e.g., this can be done by making it compulsory for foreign retailers to source from within the country).