India's 40 million shopkeepers brace for Wal-Mart effect

Somdutt's ramshackle storefront is an odd place to hear mention of Wal-Mart. Not 10 steps from his stall, where he sells packing materials, there is a goat, several squatters huddled around a fire, and an ancient banyan tree filtering the last rays of winter sunlight.

Mr. Somdutt, who offers only one name, doesn't exactly know what Wal-Mart is. But he knows the world's largest retailer is coming to India, and he wants it stopped.

"These big retail stores are going to snatch away our livelihoods," says the white-haired patriarch, who has worked this stall for 25 years.

Following the footsteps of exotic locales such as Hercules, Calif., and Toledo, Ohio, India is fighting Wal-Mart's announced plans to begin operations here in 2007. For many, the so-called "Wal-Mart Effect" is more than just a matter of losing shops in historic downtowns. According to a study by AC Nielsen, India has more shops per capita than any other nation in the world, meaning that the advent of "big-box retail" could impact 40 million shop owners and employees.

Analysts say retailers such as Wal-Mart are eyeing India's rising middle class, and a retail market that could be worth more than $600 billion in less than a decade.

But communists and trade unions have forced a government inquiry into Wal-Mart's plans, and they made the issue part of a nationwide strike that nearly shut down Calcutta's airport last week.

It is an important moment for India's economic reform effort, and for the country's far left, which spawned the world's first democratically elected Communist government in 1957. Often ignored during India's recent binge of free-market reform, the left is now hoping to stir the nation's unease about foreign corporations – and few names serve better than Wal-Mart.

"The left has to change its tactics," says Shameem Faizee, secretary of the National Council of the Communist Party of India. Until now, it has given the government too much latitude, he says. "We have to consider how we can stop the government."

Among the stalls of Delhi's bazaars, it is not difficult to raise suspicions about Wal-Mart. For several years now, shopkeepers here have cast a wary eye toward the fringes of town, where scrub land has been transformed into air-conditioned shopping palaces of glass and neon. "A lot of shopkeepers have been losing business" to the new malls, says P.N. Bhatia, from behind the counter of his fabric shop.

This is most shopkeepers' perception of Wal-Mart: Western-style glitz at Western prices. It begets disquiet, but not panic. The local market will continue to survive because it has always been cheaper, they say. But when he is informed that Wal-Mart's philosophy is to sell large volumes at the lowest prices, Mr. Bhatia's countenance drops. "The big retail stores will definitely take away business from small shopkeepers," he says.

For such shop owners, who know of Wal-Mart only as a distant name associated with American economic hegemony, there is a need for education, say union leaders. "It's directly hitting the business of these sorts of people," says Amarjeet Kaur of the All-India Trade Union Congress.

The nationwide strike last week was a part of raising that awareness. On a bright winter's day, leftists and union leaders marched toward parliament, thronging a dilapidated truck draped in red Communist flags. From its creeping pulpit – amid cries of "long live the revolution" – Ms. Kaur proclaimed: "Not one East India Company but hundreds of foreign companies are coming to loot India."

It is an idea that still kindles many Indians to action. The previous government was tossed out in part because voters felt it was turning against its own people in favor of headlong free-market reforms. The government has changed, but for some Indians the perception hasn't.

"The foreign companies are exploiting the weaknesses of the Indian government and taking over the Indian economy in the same way as the East India Company did with the weak Mughal empire," says Bhatia, an animated government pensioner who displays the Indian ability to relate events separated by centuries with complete assurance.

Of course, that assertion is widely debated here. India still maintains many protections. For example, big foreign retailers like Wal-Mart are banned from opening their own stores here. Wal-Mart had to form a partnership with an Indian company, Bharti, to enter India.

The stores, expected to open next year, will be run by Bharti. But Wal-Mart plans to provide the logistical backbone. That way, when India removes its limitations on foreign investment – which is seen as inevitable – Wal-Mart will be able to move quickly, already having a network of distribution centers, as well as a refrigerated transport chain to bring foods to market.

Still, the effect on retailers is not a foregone conclusion. "The talk about mom-and-pop stores being closed overnight is a myth," says Asitava Sen, a retail analyst at PricewaterhouseCoopers in New Delhi, suggesting that Wal-Mart will not be in direct competition with them.

Indeed, Wal-Mart's discount strategy isn't always successful. The company announced earlier this year that it was pulling out of South Korea and Germany.

Somdutt, for one, hopes to adapt and survive. In the past 25 years, his store has changed from a tea shop to a packaging store, but it has always been the sole means of support for him and his family.

"In the past couple of years our business has gone down because of [malls]," he says, but adds with optimism: "Wal-Mart could set up [here], and it wouldn't make much of a difference. God will provide for everyone."

• Saurabh Joshi contributed to this report.