Ready to be WALMART(IZED) (Allowing FDI in retail). Review on ______

The Wal-Mart, world’s biggest grocery shop is hoping for a debut in India, ranked among the six most attractive destinations for investment in retailing, if government decides to loosen embargo on FDI in retail.

Government seems to be walking on a tight rope, as the Left, vertebrae of the government, sees opening up of retail as an invitation to prodigious Wal-mart to set up its cartel here in India and erode of small scale retailers, better known as pop and mom shops.

But why Walmart is being looked upon as a big fish that survives on small fishes. The kind of growth it has evinced in past four decades has pervaded small retailers. Walmart made its debut as a “tiny variety store” in Arkansas, a small town in the southern US in 1962. However, it is rather intriguing to note that within a surprisingly brief period the company has amassed so much fortune that today it is at No. 1 among the Fortune 500 companies in the world. It is the top retail chain in the world and even bigger than the giant MNCs like ExxonMobil, General Motors and General Electric. Its dominance over the retail sector can be gauged from the fact that it earns three times as much revenue per square foot of store space as Zellers Inc, its nearest competitor.

The huge multinational retail chain operates in more than a dozen countries and has around 5000 retail outlets throughout the world. Worldwide, more than 138 million customers visit Wal-Mart stores per week. According to a report, it is America’s largest employer with nearly 1.5 million workers… the company accounts for 9 cents of every US retail dollar and sells around 20 per cent of the nation’s groceries and pharmaceuticals. Last year 82 per cent of American households bought at least one item at a Wal-Mart. The experience with Wal-Mart in Canada is that since entering the country 11 years ago by buying the failing Woolco chain, Wal-Mart Stores Inc now takes 52 per cent of the retail market share in Canada.

Very alarming! The situation in India will not be much different if Wal-Mart is been given a free leeway into India.

Like each coin has two sides to it, FDI in retail does have certain positives-

• Firstly and most importantly much needed FDI is going to be instilled into India, provided foreign investor is not borrowing domestic money to be invested domestically.

  
  




• The larger supermarkets, which tend to become regional and national chains, can negotiate prices more aggressively with manufacturers of consumer goods and pass on the benefit to consumers

  
  




• They can lay down better and tighter quality standards and ensure that manufacturers adhere to them.

  
  




• With the availability of finance, the supermarkets can invest in much better infrastructure facilities like parking lots, coffee shops, ATM machines, etc. All this will make shopping a pleasant experience.

  
  




• The supermarkets offer a wide range of products and services, so the consumer can enjoy single-point shopping.

  
  




• FDI would supply capital required to set up organised retail stores

  
  




• Great level of exports due to increased sourcing by major players. (Sourcing by Wal-mart from China after FDI permitted in China has increased manifold)

  
  




• Those who favor opening up of retail sector argues that it would increase employment opportunities. Walmart enterted China in 1996 and currently employs 20,000 people in its 43 outlets in 19 cities.

  
  




• Organised retail means more tax collection for the government. Since its inception in 1996 in China , Walmart has paid taxes amounting to Rs $111mn to the government of China. In India , we have around 12 m retail outlets and more than 95 % of which is unorganised, resulting in high tax evasion and revenue loss for the government.

  
  




• Opening up the sector would pave the way for Indian goods, especially farm goods, to get better access in the global markets

  
  

Biggest danger of allowing FDI in retail is that it may wipe off kirana shops (mom & pop stores) as local traders can not compete with international giants in terms of technology, space, capital etc. But a phased opening of the retail sector can actually make hypermarkets and convenience stores co-exist.

FDI cap upto 26% for initial few years, which is later to be enhanced to 49% and finally to 100%, accompanied by a number of restrictions including a cap on the number of outlets in line with the population of a region could help local retailers to survive the clout.

It’s time now that government should let the retail go out of lap and crawl on its own before it could actually starts walking.