Finally, Wal-Mart is on its way to India thanks to their tie-up with Bharti. And, so soon after the announcement was made, there have been sporadic verbal protests from the usual cynics, the Left parties, against the 'back-door' entry of Wal-Mart even as they are yet to formally announce their model. Pray, what is the 'back-door' entry these Left are talking about? At present, FDI is allowed in logistics and wholesale business and logically speaking, it's only here that Wal-Mart will focus on. OK, for the sake of argument, we can assume that it will bent the rules once they enter. Is it so easy? Even if it's so, let's cross the bridge when we come to it. Isn't that the right attitude?
Retail industry in India is estimated to be worth Rs 1350000 Crore and organized retail forms just 3 per cent of this figure. Now, any level-headed businessman will be only too keen to make himself present there and this is exactly what people like Mukesh Ambani and Kishore Biyani have done. And, in today's globalised economy, it's not possible to keep out foreigners for a long time, where our home-grown businessmen operate.
One of the arguments against FDI in retail is that it'll spell the death knell to the local kirana (or mom-and-pop) shops. What about home-grown ventures like Reliance Fresh and Spencer's then? This point of argument against FDI would hold equally good for Indian biggies too. It can easily be seen that this argument is simply a manifestation of xenophobia on the part of these people.
OK, what then is the point against organized retail as such? It's the same - that of loss to the local small shops. It's sometime said that local small shops are a form of disguised unemployment. Even if this is true, it's still not a strong point against organized retail.
AFAIK, the shopping malls of today cater only to the upper class and the crème de la crème of the middle class. Shopping in these is a costly affair for those with not-so-deep pockets. As competition intensifies, it will lead to lowering of prices. Lower prices will also result from scale efficiencies and better supply chain management. So, a new set of people will move to these shops. But by then, with the trickle-down effect, those who were hitherto BPL will become the patrons of the local kirana.
In my view, organized retail will prove to be the deliverance for the beleaguered Indian farmer, helping him get a better price for his produce. No longer will Minimum Support Price distort cropping patterns. However, for real benefit to accrue to the farmer, it should be ensured there is no monopoly in the organized retail sector; we need some 9-10 national-level players. Transactions should be between a willing buyer and willing seller.
Local kirana shop's advantages, inter alia, are the one-to-one interaction between the customer and shopkeeper and the credit facility given to regular customers. Big shops will lose out on this count.
Another interesting point (as noted in the Swati CA column of The Hindu BusinessLine of Dec 4, 06) to be taken care of is that, with the lower prices in malls, a sort of arbitrage opportunity will arise, whereby goods bought from there can be taken to nearby villages to be sold at higher prices. Retail markets at the village-level, in the form of 'haats' - probably with government support - should be able to solve this problem.
In my view, even if there are chains of retail shops in Tier I, II and III cities, it will not be a problem for the local small shops. The Indian retail scene is big enough for all.
