Obama aims to deepen US economic ties with India. But what about Wal-Mart?

Obama's trip to India includes a Saturday summit with top business leaders. But Wal-Mart, which will be at the table, and other international retailers remain shut out of India's retail sector.

By , Staff writer

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    Birds fly past a billboard depicting US President Barack Obama in Mumbai, India, on Nov. 5. President Obama arrives in India on Saturday to deepen American ties with India’s rapidly growing economy.
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President Obama arrives in India tomorrow to deepen American ties with India’s rapidly growing economy.

He will address hundreds of business executives from both India and the United States at a business summit Saturday.

But despite the enthusiasm that’s drawn together America’s largest-ever CEO entourage for a state visit, millions of workers in both countries are nervous about losing jobs from greater integration and cost-cutting by multination companies.

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Among Americans, concerns about outsourcing have topped 80 percent, according to a Wall Street Journal poll. The numbers reflect frustrations with persistently high unemployment.

In August, the US upped the cost of visas for high-tech workers, some of whom are sent to the US to facilitate outsourcing operations abroad or as consultants hired temporarily by companies in the US.

Fears Wal-Mart could crush India's emerging middle class

US officials have tried to combat perceptions of India as taking jobs from Americans. They cite a study by the India-US World Affairs Institute that tied 96,000 American jobs to US exports to India. Bilateral trade, which is expected to reach $50 billion this year, remains roughly balanced.

Within India, meanwhile, a mass movement has so far thwarted foreign access to the country’s retail sector. Companies like Harley-Davidson and Hewlett-Packard can open stores here, but multibrand foreign retailers like Wal-Mart or Ikea are forbidden.

“When Wal-Mart comes in, if the same growth rate which they achieved in the US is successful in India you would see a [negative] impact on more than 20 million people,” says Vinod Shetty, head of FDI Watch, a campaign to keep multibrand retailers out of India.

Many of these small-time shopkeepers are the ones who saved their money to send the young generation of Indians to college. “The success story of India is financed by these very people,” says Mr. Shetty.

India has some 12 million shops and has the highest retail density in the world. Most are small shops, crammed floor to ceiling with goods; supermarkets largely do not exist. Retail is the second-largest employer in India, after agriculture.

“Those who are hawkers or small store owners have no other source of income, and these shops will just shut down creating large scale unemployment,” says Shetty.

Is India's retail sector ready for big US firms?

Gradually, the retail market is evolving toward larger stores. But it’s a process Shetty argues should not be accelerated by aggressive outside companies. Foreign direct investment is useful in sectors where Indians lack know-how; retail, he says, isn’t one of those.

The US-India Business Council – the business group hosting Obama’s summit on Saturday – disagrees.

“The Indian retail sector is ripe for liberalization and greater international participation. Liberalization can have enormous positive effects by creating new and better employment opportunities, by introducing modern retail formats and technology, and by modernizing supply chain management and distribution,” the group says.

India’s Ministry of Commerce published a discussion paper in July that signaled government openness to opening the sector. While acknowledging concerns about wide-scale job losses, the paper noted that supply chains in India lack investment and innovation.

“The chain is highly fragmented and hence, perishable horticultural commodities find it difficult to link to distant markets, including overseas markets,” the paper found.

It put the annual losses of produce after harvest at 1 trillion rupees ($22.8 billion) due to “avoidable costs of storage and commissions.” Some 25 to 30 percent of fruits and vegetables and 5 to 7 percent of grains are wasted.

Possible announcement during Obama's visit

Shetty says such waste should be tackled by government investments. But the government is clearly eyeing foreign help, and there’s speculation that India could announce a change during Obama’s visit.

Any such move would face a bitter battle in Parliament, however, and the more than 30 million people in the sector are major constituencies for many of the top Indian parties.

In recent years, the government has partially opened the wholesale sector to foreign investment. Wal-Mart has opened a couple of wholesale stores, and made some investments in supply chains for those stores – and retail stores of the future.

How long they would continue to invest without hope of retail access is uncertain.

In an e-mail, the company said, “We’d like to see the India government relaxing restrictions on FDI in multi-brand retail, but in the meantime, we’re happy to work within the guidelines of India’s laws and operate our wholesale cash-and-carry outlets.”

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