Prior to winning the vote by the UPA coalition government on “FDI in Multi-brand Retail’, the debate in the parliament was – Should India allow Walmart, the world’s biggest retail company, free rein into the world’s biggest untapped retail market like that of India ?
The answer, according to most opposition parties and even some members within the Congress Party-led UPA coalition, was an emphatic NO — for the same reasons that Walmart arouses such ire around the world — the fear that ‘faceless’ retail giants like Walmart, Carrefour and Tesco will crush the millions of small, family-owned kirana stores that dominate Indian retail.
In India, we are used to the ‘nearby’ kirana stores ; and, the bonding with the customer is very strong due to excellent ‘personal attention’ extended by the kirana shop owners. It is more than just ‘free home service’ rendered in response to ‘just a telephone call’ requesting delivery of few items. Many-a-times I wonder, how is that the kirana stores manage to give free home service for even few items ? In addition, credit is given to the customers by the kirana shop owners and the bills are settled only on a monthly basis. These kirana stores operate with such low overhead costs by relying on ‘informal’ labor and making minimal or zero investment in any technology, for that matter they do not even invest in refrigeration ; and that’s the reason I foresee, it will be hard for Walmart to compete with these kirana stores. Besides all this, India’s small retail traders have invested in their relationships with the state and local politicians, who count on their support around election time.
So, Why Walmart should want to be in India ? In India, the majority of the population is employed in agriculture, and Indian farmers stand to gain a lot from greater investment by anyone — foreign or domestic — especially, in ‘the supply chain’ that brings food from the agricultural field to the consumer. Also, Indians are in the habit of shopping for their fruits and vegetables almost on every day basis, and that’s tantalizing — ‘get the customer into the shop every day, and chances are he or she’ll buy something extra’. This is quite unlike in the US, where the customers stock meat and other Non-vegetarian foods for a week or so. Food storage is a matter of concern in Indian homes because they mainly consume vegetarian foods that are perishable without right storage facilities. And, that’s why..Food is the main reason Walmart wants to be in India, though they will sell other products like electronics, home appliances too.
And, the Indian food supply is so vast and so neglected; most Indian farmers don’t even have proper irrigation facilities, let alone access to cold storage. Lot of wastage of foods is done (especially, the onions), due to lack of efficient food supply chain ; and, this happens every year, despite incurring huge losses in terms of investment by the government and the traders. So, the primary reason to invite Walmart to India – is to modernize the existing supply chain, to allow restrict too many distribution layers in order to make costs lower ; provide better technology in the entire sell-buy cycle thereby adding more points of sales due to ease of controlling the operations and finally, we hope that the retail giants will create more employment opportunities to the local ‘un-employed’ rural population living in villages. Naturally, rural markets will be modernized over a period of time. penetration of mobile telephony will increase market awareness (as to the current prices) among the farmers so that they earn better profits from the same agricultural produce.
As per the Indian Government ruling, it is mandatory that the foreign retail giants/ players source 30% of raw material from the local suppliers. And, the ‘maximum’ in the huge market size of $450 million retail trade across India is the unorganized sector. The unorganized sector will be free from competition by Walmart. What do we stand to lose here by allowing Walmart into India ? Probably, the kirana stores will move ‘one rung lower’ in the supply chain ; but, they will make more voluminous business when compared what they are doing now. Effective supply chain will discover new markets within India to sell foods to the customers not tapped as of now.
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