Why India pulled the welcome mat for Wal-Mart
Intense protest prompted India to shelve plans this month to allow box stores like Wal-Mart. But many say the retail sector is backward and needs the jobs and investment such stores would bring.
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"Those who have opposed the entry of foreign direct investment [FDI] in multibrand retail have done this without recognizing that this is a sector that remains backward, dominated by a cash economy, with all its features of nonaccountability, and has poor to horrible working conditions," he says.Skip to next paragraph
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Prime Minister Manmohan Singh has argued that opening the sector would create 10 million jobs and cut India's rising food-price inflation.
Currently, 40 percent of fruits and vegetables rot before they can be sold due to a lack of cold-chain systems or refrigeration from farm to store. Under the government's plan, multinationals would be required to invest $100 million over five years, and at least half of that must go to building a cold-chain system and rural infrastructure. Supporters argue the investments could help provide food to millions of people in a country racked by malnutrition.
Rural Indian shoppers, however, would not be walking up to a big-box store in the countryside. According to the current guidelines, multinationals are not allowed to operate in cities with a population of fewer than a million people.
As for jobs, Mr. Kumar argues that small retailers won't be out of work if Wal-Mart comes because the unorganized retail sector is set to nearly double in the next 10 years by simply keeping pace with growth.
Analysts say it's the middlemen like Ilyas who are likely to be affected most, as the multinationals will deal directly with the farmer. But this could lower prices for the consumer as there would be less nonvalue-added cost involved.
Both Kumar and Mr. Chandrasekhar agree that the only way all the stakeholders will support the FDI in retail is after thorough analysis and serious public discourse.
"Foreign ownership of retail in India is ... a very disruptive policy," says Chandrasekhar. "There may be winners, but there are clearly going to be many, many painful losers. As long as a policy implies pain and loss to certain segments of our society and people, it will never become a reality."
While opponents succeeded in stopping the plan for now, some of them, like shopkeepers Malik and Ilyas, say the coming of the big-box retailers is inevitable.
Malik is certain the 50 percent of his clientele who buy on credit will still choose his store. Ilyas says he's ready to adapt to the changing role.
"When Wal-Mart comes it will not affect me," says Ilyas. "I'll play a bigger role in the supply chain and will integrate myself with Wal-Mart."
Ilyas may be changing roles sooner than later: The prime minister said recently that he hopes to pass the FDI policy in retail next year. "There was inadequate preparation, and some partners in the coalition developed cold feet," Mr. Singh told Bloomberg. "But I can assure you, India remains committed to a system of regulation that is supportive of enterprise, and we will do everything to encourage foreign investment."
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