Who’s Afraid of Wal-Mart Wolf?

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Foreign mega-retailers are likely to do the country more good than bad

The government has finally allowed 51 per cent FDI in India’s multi-brand retail sector. Yet, scepticism persists over what it will achieve. The move’s broad justification rests on the premise of disintermediation. Specifically, that farmers and consumers would benefit once middlemen are pushed out of the ‘farm-to-fork’ food chain, thanks to investments by big retailers keen on Western levels of operational efficiency.

While consumers may well get lower prices, says a much-cited survey report by UNI Global Union, a Switzerland-based outfit that represents workers in service industries, letting mega-retailers like Wal-Mart into India could also result in lower remuneration for farmers (in the long-run), depressed wages for retail workers, and import surges. ‘Global retailers have global supply chains’ that can wreck domestic manufacturing (especially small units), the report warns.

Indian retail experts are mostly unconvinced by that report. On farmer remuneration, Harminder Sahni of Wazir Advisors cites the example of Pepsi: “Farmers supplying their produce to Pepsi have experienced better realisations for their produce.” With committed MNC buyers, farmers can be confident of their finances and invest in productivity.

Analysts also dispel fears of wage declines in the retail sector. If the sector gets properly corporatised, they argue, wage structures would also get formalised, with all the attendant employee benefits. Plus, more competition in any market usually means better salaries for all.

As for the notion that foreign mega- retailers pose a particular threat to small Indian shops and suppliers, experts say that this is a hypothesis yet to be tested. “The fear that global chains like Wal-Mart would crush small retailers and destroy smaller industries may be real, but [have so far been] unfounded in the Indian retail space,” says Sahni. Local suppliers are likely to come under pressure to turn more competitive, yes, but this could see the fittest of them thrive. Moreover, the retail FDI policy does shield them to an extent with its 30 per cent ‘local sourcing’ condition imposed on foreign retailers. This grants small suppliers something they never had: committed buyers. Once it is clear how this is working out, the Centre can decide whether to raise or lower the sourcing proportion. But is it not hard to police the adherence to such a clause? According to Abhishek Ranganathan of MF Global, the policy requires retailers to self-certify their sourcing ratio, but this still needs to be vetted by auditors, which is “enough to discourage false information”.

All in all, concludes Sahni, “We need to test the policy on the ground and see how it plays out.”