Indian Economy - News & Discussion 27 May 2012

[amit]

Second link

Well I suppose this article written by an associate professor of the Institute of Financial Management and Research (IFMR) is hogwash because he thinks FDI in retail is about supply chains. What rubbish right?

FDI in retail will bring down inflation by investing in supply chain logistics, that is, by investing in transport and refrigerated storage necessary for perishable items. Typically, if a farmer were to sell his produce, he needs to bring it to the local market where he usually auctions it to the retailer, who, in turn, will sell to the final consumers.

This process of auctioning in the mandi (central market) is facilitated by the middleman, who charges a commission from the farmers. Add to this the cost of bringing the agricultural produce to the local market; the price difference between what the farmers get and what the consumers pay is what society loses out due to inefficiency.

By investing in supply chain logistics, the players in multi-brand retail will reduce the cost, and bring down inflation. They will procure the produce directly from the farmers, keep it in their storage, and transport it directly to their retail outlet. It is worthy to note that there is a huge investment involved to get the supply chain logistics in place — something that FDI in retail promises.

Those who have been arguing that the local kirana and the marginal farmers may be hurt — the former losing out on business, and the latter not getting the right price – are not right. Currently, the local kirana, and retail outlets such as Reliance Fresh, Tata-Tesco, and Spencer, to name a few, are co-existing comfortably with each other.{Except for in Jalandhar I guess }

Marginal farmers also stand to gain. Recent evidence suggests that marginal farmers who have entered into contracts with Pepsi India have on average realised double the price in comparison with the local mandi and the local mahajan (in absence of the local mandi). This is an eye-opener for those suggesting that multinationals will squeeze the farmers by not offering them the right price. {Oops I forgot Pepsico hoodwinked all of us, while we were busy sipping mulitnational cola}

Experience from around the globe suggests that the local kirana needs to worry from the spread of e-commerce, and not the presence of corporates in the retail sector. India badly needs corporatisation of the agriculture sector to even out distribution of income. The ITC and Pepsi examples have shown that, in their best interest, corporates directly get in touch with the farmers, and give them the necessary information on how to increase crop output and productivity.

The author also says something else:

It is to be noted that the agriculture sector receives minuscule investment, while supporting the livelihoods of around 55 per cent of the population.

Now the question to ask is if an international brand retail were to invest say U$100 million in India, what percentage would go to setting up shops and what percentage would go to building the supply chain (which would in effect be agriculture related investment). A little bit of digging via Google chaccha would provide the answer. I'm sure the answer would supply a lot of folks.

And wonder of wonders, that bastion of capitalist robber barons, the World Bank in this paper has aired these "lies" about FDI in retail:

There is a general misconception that market-seeking FDI in domestic sectors such as retail yields little development impact. The opposite is true. FDI in retail has been a key driver of productivity growth in Brazil, Poland, and Thailand, resulting in lower prices and higher consumption. Large-scale foreign retailers are also forcing wholesalers and food processors to improve. And they are now becoming important sources of exports: Tesco in Thailand and Wal-Mart in Brazil are increasingly turning to local products to feed their global supply chains.

The portion in blue above should be read with the Crisil report which says 30 per cent of farm output in India is wasted.

Meanwhile, I'm still waiting to read those tons of reports about how Walmart has impoverished communities all around the world...

Oh yes, before I forget, this "stupid" World Bank report also says this:

The misconceptions about FDI are made worse by political economy factors: while attracting efficiency-seeking FDI does not
affect incumbents, attracting market-seeking FDI usually does.

The middle men in the food business, the Mandi walas and wholesale traders are a very powerful political group with lots of money. They know the right strings to pull and thus you have so much political opposition to a potential game changer in India. With so much going for them, a lot of folks have jumped on the bandwagon, many without realising the issues involved.

Nevermind that a more efficient distribution systems would mean more money in the hand of farmers and better and cheaper foodstuff for consumers.

Oh well...

Folks take my two post for what they are worth. I just like to let you know irrespective of your opinions/comments I'm not going to respond.

TIA

[Dileep]

For the record, an Indian farmer gets anywhere between 60% and 70% of the retail price for rice and wheat. The percentage varies, but is upwards of 50% for most of food items, including eggs and poultry.

Where did that number dome from?

Here, people get Rs 3 for a coconut, and pay Rs 15 in the shop. Farmers in TN get Rs 5 for a kg of Tomato, and we pay Rs 30 at the shop. Same story with rice. Same story with the carrot/beet/cabbage/cauliflower farmers at Munnar.

If you sell your vegetables to the local kirana shop for him to retail, ie eliminate all middlemen, you will get 60% of retail price. I know, because I asked my local shop guys to see if I can expand my little garden a bit.

So, I am calling the 60% number as "pulled from posterior, and stinking of crap".

[chandrasekaran]

I have a newbie question for the proponents of FDI in retail - just to understand this better.
Do we have any other country (South American countries ??) where the arable land is fragmented like in India and the capabilities in terms of ability to invest, equipment etc differ from each farmer? I am curious as to how large retailers deal with such a large fragmented bunch for procurement ? What checks and balances do we have to ensure that the arm twisting that's done today by the middlemen is not simply transferred to a bigger MNC ?

[vina]

What checks and balances do we have to ensure that the arm twisting that's done today by the middlemen is not simply transferred to a bigger MNC

Why go to S. America when sufficient models are available right here in India (the most relevant market) for what you are looking. For eg, why don't you download and look up the statements of a large agri based conglomerate like ITC who have such deep roots into rural India , have big foods, edible oil and of course tobacco business where they dominate the market and see how they procure, how the give back etc. Also look at their Indian competitors and see how they operate as well.

Why not look at relavant LIVE examples, rather than look at cases from other markets and try to extrapolate into Indian experiences via some random hypothesis and pass that off as the 'truth" arrived at after 'analysis'. That kind of thing is the hallmark of the classic Dilli (JNU/DSE/ISI/St Stephen) ding-dong.

[chandrasekaran]

Vina, thanks for the reference. I didn't know about this.

[Yogi_G]

All said Natwar Kaka and Ambuja mami will still go the Kirana store to get their usual stuff. In those states where retail FDI is allowed I see super walmart kind of stores catering to the demand of the upper middle class folks (will be interesting to see how they handle parking needs). As India's income slowly grows across the board and with labour growing costlier we will be better equipped to handle the demand. Also, it will be wrong for Indians to assume that they can grow up to first world levels in income and escape from the typical first world problems.

All the gloom and doom scenarios around retail in FDI assume the Indian user base to be a monolithic entity, it is not. The Fords and Toyotas are in India and Indian companies are very much alive and kicking. With the right checks and balances FDI in any sector can help the country.

I was reminded of the discussion in the real estate thread where it was mentioned that with improving road infrastructure and public transport the sub-urban culture mindset would creep into Indians as well, you can envisage the average middle class Indian buying a piece of land in Chengalpattu or say the wrong side of Noida and drive all the way to a super-mall to pick up stock for an entire month with wife and kids in a UV. If that were indeed to happen, the present crop of kirana stores will in no way have the packing in place to cater to such quantities.

[Gus]

So, I am calling the 60% number as "pulled from posterior, and stinking of crap".

Correct. A vegetable grown in Erode to reach Kerala - is probably changing hands a dozen times, each of which has a cost involved.

Despite the high prices we pay at a city shop, small rural farmers are struggling to survive. Many have sold in the area where I grew up, including us.

[subhamoy.das]

I heard somebody say that rural india consumes more than urban these days. Any public data to prove it?

[subhamoy.das]

We have access to a super market called METRO CASH and CARRY in kolkata. Prices are upto 20% cheaper than what what u will find in corner shops. In fact these corner shops buy from METRO and sell to house holds. But there is a catch. You must have a trade license to shop at METROP. Now with this FDI i can visualize a METRO accessible to common house holds and that trade license will be gone. Having R2I almost 10 years ago I donot think Indian upper middle class has the storage and the consumption purchase needs to stock up like we used to at Uncle Sam. We ourselves tried it and have switched to corner shops. I think modern retail in small to medium formats is the way to go India.

[subhamoy.das]

There is SPENCER and then there is BIGBAZAR in KOLKATA. Price at SPENCE is 10% more than BB but shopping experience is more like Uncle SAM. Crowd in SPENCE is upper MC compared to MC and below in BB. We stopped shopping at BB because experience - too many people, chaotic check out, long trip back to car with heavy bags in hand - prevailed on price gain. I am not sure how FDI in retail will change this. Vegetable prices are also not that cheap at these retails. If u want real cheap price - and have the heart to stand that squalor - farmers market are the best here.

[Aditya_V]

Things which will be cheaper at these Big retails are clothes, footwear, utensils, unkown brands of toothpaste, shoe polish, wax etc with questionable quality. I am willing to take a bet food will not cheaper. This policy will not detroy the Kirana shop nor will inflation dive down because of it. Farmers will also not become rich and poverty wiped out as predicted by Clown prince or Dalits empowered as stated by Kancha Illiah. Its more about American businesses to tap into the Indian Market. With thier Financial Muscle and existing tie-up with Chinese manufactures they will however pssoibly have a huge impact on small shops seeling watches, shoes, utensils etc.

Reducing Fiscal defecit by say increase price of Diesel will compensate and reduce inflation while directly increasing inflation.

[Theo_Fidel]

There have always been 2 different crop to retail chains in India.

First is the one with Government support prices.
Second is the one without government support price.

For Ponni Rice this year I got a support price of roughly Rs 18 per kg. My moisture content was a bit high and so didn't get the full price of Rs 22. At the local potti kaddai I can buy the same quality rice for roughly Rs 25- Rs 35 in the open market.
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So I would say it depends on where you are and the distance the crops have to travel. I would say it is a very complex situation. For instance WRT Onions I would say that shipping from Nasik to Chennai means the Nasik farmer only gets 20% of the price. But Nasik farmer is productive enough to be profitable even at this price level. But in rural TN onions are typically grown locally and are often far cheaper. They just don't have the volumes to feed Chennai. Near Katpadi Vellore during the big onion price spurt 2 years ago, country onions were available at the railway station for Rs 8 per kg, this when Nasik onions cost Rs 30+ per kg in Chennai. We bought 5 kgs while many others bought more.
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Kerala folks get shafted on prices. It always amazes me how much more expensive food is in Kerala. There is a reason TN traders line up to ship produce to Kerala, including me. I can very much believe only 20% of what Kerala folks pay goes to farmer. But this is not true in most of TN. Even in places like Madurai and Chennai with exceptions.
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The grand thing about organized retail is that since a SINGLE supply chain feeds all the different areas, price volatility between regions disappears. For instance here in the Central Midwest the vegetables come all the way from California. Yet because of a single system the price of vegetable in Sacramento, 20 miles from farm is exactly the same as the price in Midwest 2000 miles away.
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If one is willing to endure village markets the cheapest prices by far for everything exists there. You can buy Rs 2 Pineapples and Rs 5 per kg ladies fingers and Rs 5 onions in season.
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Long term, folks have to move out of farming. There is too many people doing that in India. This farm to fork is just a side story. The equally big one is in industry.

Where do I disagree with this. All I'm saying is that you need a safety net to catch these folks. We don't have a safety net yet and have jumped head long into FDI retail. Classic Indian approach of creating problems that others will have to clean up.

[vishvak]

Not sure of perishables, perishable
From a book link review link

Walmart and "Made in China" are practically synonymous; Walmart imports some 70 percent of its merchandise from China.
..

and more.

[Theo_Fidel]

While we are at it, we should note that Wal-mart imports a ever larger fraction of its food from China now. With disastrous consequences in many cases. So there is every chance that they will simply bypass local farmers and go straight to China for as much as they can. Why bother building retail chain in India when it is already built in China.

Again one should follow the studies of what happened in Mexico. I have posted this before. Mexico to my mind is very close to what India would experience. Very rapidly the level of imposts surged from 20% to 60% of production. Manufacturer after manufacturer was exterminated by the China price. Walmart forces every company in the world to compete with their China price.

It has not been a good experience. India should try to follow the European model more. Fragmentation has allowed a much more diverse group of speciality suppliers.

http://www.sactwu.org.za/news/41-walmar ... f-bargains

What of the effect of Walmart’s pursuit of its low-price strategy? French economist Cedric Durand has linked Walmex to a dramatic increase in imported goods into Mexico in an article published in the Cambridge Journal of Economics:
“After 1997, we observe a faster increase in Walmart’s imports in real terms compared with its competitors’. If we look at the imports-to-purchases ratio, we see that all the enterprises have been significantly increasing the share of imports in their purchases, but also that Walmart has shown a much more dramatic evolution: from 20 percent in 1997 to more than 55 percent in 2002 and 2003.”

Walmart’s pursuit of low prices significantly affected the total levels of imports into Mexico. In this, Durand’s findings echo similar conclusions by the Economic Policy Institute (EPI), which analysed Walmart’s effects on imports and jobs in the US. It concluded that Walmart’s imports alone were responsible for destroying 200 000 jobs – including 130 000 manufacturing jobs – between 2001 and 2006. The destruction of manufacturing jobs is significant: a strong manufacturing industry is a key driver of development.

That Walmart’s massive bargaining power and its importation practices lead to increased job losses is borne out by the Mexican evidence. For instance, Walmart expert and professor at the University of California, Nelson Lichtenstein, has said: “Walmex has had a devastating impact on Mexican manufacturing. Although Wal-mart initially claimed that it would incorporate local Mexican firms into its supply chain, the famous squeeze on profits and labour never let up.”

He quoted an executive of a small clothing manufacturer as saying: “Walmart has driven many suppliers out of business. Walmart maintains its profit margins… They never reduce their margin. They do pass on savings in price, but at the expense of the manufacturer. You can increase efficiency a certain amount, but… for example, they may tell you, ‘We’re going to sell shirts at a 40 percent discount – you, the manufacturer have to cut your price 40 percent.’ So the consumer benefits, but they’re driving out of business the manufacturers that provide jobs.”

Even when Walmex purchases goods locally, it squeezes manufacturers to continuously reduce costs. This usually ends in manufacturers having to import the goods they supply, as they cannot manufacture at such low prices, legally anyhow.

Clothing makers and workers have not been the only casualties of Walmex. Many other sectors have been affected. For instance, while productivity has increased within the soaps, detergents and surfactants industry in Mexico, employment in that industry has decreased by about 20 percent, largely as a result of Walmart.

[shaardula]

there are a lot of problems with indian food retail. but so is the case with with the american model. i have lived/worked in small town/rural america. its not as hunky dory as is imagined. getting non-meat food is a pain. even with meat, as i tried briefly, you only have to rely on bulk supplier and their whims. almost nothing that is grown locally is consumed locally - at least in rural south. given their economic state, one would have imagined that these folks would rely on local produce. but no, they trade their 'farm fresh' produce and feed themselves on cheap industrial canned spam. that leaves the non-produce types in a major lurch. and i'm not even talking about the ugliness and public health disasters associated with crop patents, homogenization, etc. be thankful that you dont have kids with produce allergies. of all things, why do such a large number of kids in america, even of indian descent, have nuts, dairy allergies?

the in thing in the US is now co-op farms, and local produces. these are precisely the things we are ripping ourselves to get rid off. in US, things are so efficient that only the really richfolks can buy into these fancy ideas. there are efficiencies to be sought in indian models, but US style efficient giant retailers are not the answer.

[RamaY]

Go home - UPA-2 has distorted India's "growth" story, says N.V.Subramanian.

17 September 2012: A fair and productive political economy will not come the Manmohan Singh way who is a slave to the West (see Commentary, "Behind the attack"). It may come by examining why the opening up of the economy in the early-1990s succeeded, entered a rough patch subsequently, showed up under NDA, and has collapsed under UPA.

It is no gainsaid that P.V.Narasimha Rao as prime minister was responsible for the 1991 new economic and industrial policies which finance minister Manmohan Singh as one of the technocrats saw through. Always given to excess, Manmohan Singh drastically cut social sector and educational spending in his first budget leading to uproar and amendment. Not to forget that he allocated Rs 100 crores over five years to the Rajiv Gandhi Foundation that had to be withdrawn after more opposition.

The reason that the early-Nineties' opening up succeeded was because Indian society's traditional entrepreneurial energies locked up by decades of Nehruvian socialism and Indira Gandhi's license-permit-quota raj suddenly found outlet for expression. One of the biggest success stories of those times was Infosys whose promoters were honest first-generation entrepreneurs. Then there were the SMEs in multitudes, the unsung heroes, who manufactured almost entirely for the Indian market, and produced the boom.

India's boom, therefore, was self-created. It was not FDI-inspired. Then as now, India has never been a great attractor of FDI, not of the scale of China. On the other hand, it has been a destination for foreign hot monies, which have played havoc with the Indian stock market. And yet, neither in the past nor now, Manmohan Singh has ever acknowledged this reality. He has never praised SMEs for the boom, and been ever willing to privilege foreigners over Indian entrepreneurs.

Of course the early-Nineties' boom reduced to a whimper when Congress lost the Andhra Pradesh elections mid-term. The electorate has never bought reforms or what passes for reforms. The boom only then revived under A.B.Vajpayee, when it truly flowered. Everywhere except the farm sector, beset by debts and suicides, India grew, and Vajpayee's river inter-link scheme was meant partly to address farm-sector distress.

Unable to junk Vajpayee's national highways' project for long, the successive Manmohan Singh government definitely took revenge on his river inter-link scheme, abandoning it for phoney environmental reasons. To address the distress in the farm sector, however, and concomitantly make it a Congress votebank, anti-poverty schemes were designed, all of which amounted to socialistic wealth redistribution. The social audit of NREGA, for instance, shows no assets have been created, whilst, among other terrible trends, semi-skilled labour has become unskilled because of availability of easy money.

This is the opposite of teaching a man to fish and making him self-sufficient.

It is this NREGA easy money, coming from socking you and me via multiple taxes, high fuel and living costs, and by hugely raising the burden of doing business in India, which is fueling inflation, which in turn has, allowed to grow uncontained for three years and more, destroyed the economy. Lots of businessmen will tell you India does not need FDI, that there is plenty capital hoarded up. The business environment is just not right.

Who has destroyed this business environment? UPA-2. Businessmen who want to do clean business are appalled by the corruption and crony capitalism under Manmohan Singh. The inspector raj is back. Income tax officials openly speak of building "small" nest-eggs of Rs 30 crore and more which their salaries cannot enable. In the environment of loot, everyone wants a share.

The Indian economy is down and out for these reasons.

Manmohan Singh, Montek Singh Ahluwalia, P.Chidambaram and other economic right-wingers speak incessantly of growth without addressing the issue of quality of growth. Wealth redistribution leading to growth cannot be called growth. An economy truly grows when real jobs are created, not the fraudulent employment provided by NREGA, and on this standard, India has spectacularly failed.
Manmohan Singh has no honesty or will to correct the egregious distortions in the Indian "growth" story. Whilst his slavery to the West leads him to take cruel policy decisions such as approving multi-brand retail, it can also be said that Manmohan Singh is clearly clueless about how to rescue the economy.

The sooner the country returns him to his Western home, the better.

[Theo_Fidel]

As long as we are decrying JNU ding-dongs, and yes they very much are ding-dongs we should also decry ICRIER type Non-Profit ding-dongs as well. And yes they very much are ding-dongs.

Look at their board of directors, all industry funded ding-dongs of various types who mostly don't have a clue on how retail works. They too have an agenda bought and paid for.

Reading their study it is obvious that they have NOT presented any evidence to show their claim that FDI on retail will have no effect. What they have done is run around and asked existing domestic retail companies and potti kaddai's if there has been any impact. They don't say anything really about Wal-mart type companies.

What they do say that Metro cash & carry type systems allow a more centralized system for local retailers to improve their efficiency. Note that this model is already legal.

[Theo_Fidel]

The ICRIER report points out these items as well.

- India retail employment at present 120 million.
- Equivalent Wal-mart size employment 6-8 million.
- Food+Groceries are 60% of Indian retail.

[member_20317]

What checks and balances do we have to ensure that the arm twisting that's done today by the middlemen is not simply transferred to a bigger MNC

Why go to S. America when sufficient models are available right here in India (the most relevant market) for what you are looking. For eg, why don't you download and look up the statements of a large agri based conglomerate like ITC who have such deep roots into rural India , have big foods, edible oil and of course tobacco business where they dominate the market and see how they procure, how the give back etc. Also look at their Indian competitors and see how they operate as well.

Why not look at relavant LIVE examples, rather than look at cases from other markets and try to extrapolate into Indian experiences via some random hypothesis and pass that off as the 'truth" arrived at after 'analysis'. That kind of thing is the hallmark of the classic Dilli (JNU/DSE/ISI/St Stephen) ding-dong.

But Walmart and partners, also has Real Estate in their books. That queers the pitch big time, for everybody involved, even for the ITC types. ITC would go out, build relationships, develop procurement as a function, process then sell it cheap to you and me. The whole thing was efficiency driven. Now the whole thing will become valuation driven. If I owned ITC, I would have gotten into the bandwagon myself. Owning the market is more important then efficiency.

Walmart types would bring in money. Probably not even that. An Airtel will tap the Indian Stock market to fund the business. The business will look at prime property with 15% assured capital gains. Sunil Bharti Mittal actually suggested that government sell of the defence land in NCR to fund the deficits. Mostly this kind of real estate would be Gurgaon Banglore type places. Then they would set up a marketing oriented business just to keep the clock ticking. All the investors would come in because of the capital gains. Since the richer clientele would get served only by these guys so the small business owner will get restricted to the less remunerative markets and remain squallor filled, giving his own justification for further Walmartization.

That is exactly what happened in both the Mall stretch in Gurgaon and in Atta Market, Sector -18, Noida.

If the problem is squallor and 10% higher prices for poor people then the solution to my mind has to be something better then Walmartization.

Anyhow so much going wrong. Is saale ko bhi dekh lenge. Compared to Jaziya this would be gold plated jail.

First the hot money that comes into the Stock markets will find place in the real estate which is in any case properly overcrowded. Everythings gonna get hot.

[Abhijeet]

Food is one thing. Organized retail will bring down wastage which should reduce prices. However I believe the real difference will be in the quality of manufactured goods that will start to become available. Most manufactured goods -- from toys to appliances to machinery -- in India are overpriced and far below international quality, because they are made by hole in the wall outfits in China and imported by equally fly by night operators in India. Check out the "Imported by" tags on some of the merchandise in your neighborhood store sometime -- there are so many imported items it's not funny, and most items are imported by unknown companies in Bombay or Delhi. Who's doing the quality control on those items? Precisely no one.

While we love to complain about "Chinese quality", there is a world of difference between products made for international retailers which happen to be made in China and those made by your friendly neighborhood Chinese clone shop. We have too many examples of the latter kind of detritus in India. Now, hopefully, we'll see more products made with international-level quality control and without a huge markup. Walmart and other large retailers (and Walmart is far from the only large retailer out there, though most discussion seems to center around them) can amortize their sourcing and manufacturing costs over a global market in a way that Indian retailers cannot yet -- which means we get the benefit of better quality control and lower prices.

[nakul]

^^^

Lets not get dovey eyed here. That is not how capitalism works. WalMart only has to price its goods cheaper than the competition. Even if its buying costs are very low, its sales will boom if it prices just low enough that people buy from them. I have seen goods that do not carry price tags (soft toys, accessories, groceries) are actually not discounted as products with fixed MRP. Customers arrive at large stores for discounts on products. While they sell products with fixed price at lower prices, the unbranded (without price labels) do not reflect that. Moreover, the competition is variable. The absence of a competing vendor in any sector will allow WalMart to raise prices. Monopoly does happen in certain sectors.

From an SDRE perspective, we waste more money in large stores. The amount of useless stuff brought at this type of a store far outstrips any discounts. A lot of reckless spending happens. While this may vary from person to person, a lot of people have confessed that the expenditure on one trip runs to several amounts more than visiting several stores. Stores are equipped to exploit. Store shelves are designed to encourage complementary purchases (Cups next to tea, knives next to fruits, huge 50% discounts on products nearing expiry). So anything with regard to saving money can be taken with a pinch of salt especially where unlabelled goos are concerned.

[Abhijeet]

India is far, far away from a situation where the majority of people over-consume anything. For most people it's a struggle to get access to the most basic necessities of life. Lower prices put more products within the reach of more people. And here we worry about people buying too much useless stuff. How much more ivory tower can people get?

Second, there is no reason Walmart or anyone else should be a monopoly. They are not one in the US, their home turf, and certainly not anywhere else in the world. Competition, competition, competition, to paraphrase a chair-throwing software executive -- letting Walmart (and Tesco, and Carrefour, and Target, and Best Buy) in increases competition -- where in the world do people get this idea that it means a monopoly?

Yes, every company is in business to make profit, and no one "has" to do anything -- it's only competition that results in better quality and prices. Which is why injecting more competition into the market is a good thing.

[nakul]

India is far, far away from a situation where the majority of people over-consume anything. For most people it's a struggle to get access to the most basic necessities of life. Lower prices put more products within the reach of more people. And here we worry about people buying too much useless stuff. How much more ivory tower can people get?

I'm afraid WalMart is not the solution to all our problems. These people will continue to be poor, WalMart or no WalMart. Its efficieny, cost cutting will decrease jobs and to the list of the poor. So WalMart is a double whammy. People who have money will shop at WalMart and no, WalMart will not subsidise food so I don't know why poor will have a better chance at getting food here.

Second, there is no reason Walmart or anyone else should be a monopoly. They are not one in the US, their home turf, and certainly not anywhere else in the world. Competition, competition, competition, to paraphrase a chair-throwing software executive -- letting Walmart (and Tesco, and Carrefour, and Target, and Best Buy) in increases competition -- where in the world do people get this idea that it means a monopoly?

WalMart sells everything from chairs to soaps. So it only needs to lower prices in areas where competition exists. In areas without a peer (eg utensils), there is no incentive to lower prices. WalMart does squeeze supploers into signing exclusive deals if it can ensure lower prices. In the US, WalMart controls 50% of the FMCG market, so a supplier can lose 50% market share overnight making it hard to compete. Hope its better here.

Yes, every company is in business to make profit, and no one "has" to do anything -- it's only competition that results in better quality and prices. Which is why injecting more competition into the market is a good thing.

The question is correct. The solution isn't. The way to increse competition is to lower the price of entry. not increase it. People who should not have to improve storage facilities, build chains, source large quantities and rely on govt infrastructure will get squeezed out, Instead of improving the basic facilities in governance, the govt has basically outsourced its problems to WalMart. WalMart is not going to do anything to imorove the competition's access to the market. This means a large no of small time traders who can't go head to head will be pushed out. Those who are willing to supply at WalMart's prices will continue to be controlled by them. As the barrier to entry increase, competition decreases. We have seen what it has done to US economy. There the wages are so low that it is difficult to support a family ($7 /hr). I can't imagine WalMart giving out any more money than it is required to keep the wheels moving.

[Theo_Fidel]

Another thing.

It is a fallacy to think that Wal-mart does not bring in more middle men. It very much does so.

Expect to now pay $100 million type management yun-bee-yaa types and also pay a nice fat profit margin to stock holders.

There is nothing wrong in this. This is how capitalism works.

But to then think that Wal-mart will reduce prices of food for the poor is simply off the mark. Walmart food in USA is definitely not cheap. I can buy far cheaper vegetables at the local farmers market in non-A/C comfort. Just this week I bought a 15 pound bag of apples for $6, this when apples were going at $1.19 a pound in Wal-mart. Of course this pricing will only last for another month or so a apple harvest is coming to an end.

BTW there are plenty of poor in USA. Roughly 50 million at last count and most are fed through soup kitchens and charity food. Presence of Wal-mart has not increased their access to food.

[nachiket]

People here seem to think of Walmart entering India as the coming of the apocalypse. They are forgetting a simple fact that I believe Singha saar (?) has repeatedly mentioned here in the past. Unlike in the US and western countries it won't be possible for Walmart to swamp out its competitors, the local kirana stores with ultra low pricing the others cannot afford. The reason being a lack of real estate for Walmart to open several huge US style stores in every city here. The reality is going to be very different. There will be very few Walmart stores (1-2 per large city) located a little distance away from the densely populated residential areas which have no space to house a store like this. Anyone without a car would find it impossible to go to walmart for everyday shopping. Majority of the people will continue to shop at the local kirana store like they do now.
So stop making a mountain out of a molehill. Let Walmart and the others come in and let those who can afford to go and shop there, do that. It doesn't hurt anybody and even creates a few jobs in the process. We have a habit of protesting every new thing that comes to India. We have protested against everything from railways to computers. This opposition is just as ridiculous.

[Hari Seldon]

^^^Also, with retail FDI being restricted to 1million+ cities and then only in states that decide to opt in for it will further dent the impact of the Walmart invasion. I doubt it'll be as big a deal as many think.

The right (scientific?) way to go is for pioneer states and cities to launch experimental Walmart invitations and see how the impact goes for all stakeholders and business ecology co-existers. The laggard states will happily sign on once they see the benefits exceed the costs (like happened with IT-vity and ATMs).

[Singha]

in the end walmart might not even come here. the only way they can spread their footprint is through smaller neighbourhood stores where the benefits of supersizing are minimal - security, water, electricity, distribution, rentals, storage are all more costly across 50 small sites than a single giant store.

imo they might come but quickly run away with tail between legs blaming everyone but their model *which is only proven to work in very specific circumstances like the US where people are willing to drive long , land is cheap, power is cheap, tax breaks are easy to get, industrial food is cheap and people are willing to buy a months grocery in one sitting, and sometimes a years worth of tomato pasta or toilet paper*

[ShyamSP]

in the end walmart might not even come here. the only way they can spread their footprint is through smaller neighbourhood stores where the benefits of supersizing are minimal - security, water, electricity are all more costly across 50 small sites than a single giant store.

imo they might come but quickly run away with tail between legs blaming everyone but their model *which is only proven to work in very specific circumstances like the US where people are willing to drive long , land is cheap, power is cheap, tax breaks are easy to get, industrial food is cheap and people are willing to buy a months grocery in one sitting, and sometimes a years worth of tomato pasta or toilet paper*

Walmart has compact store format. So they can have mega stores serving customers at mega places and as hubs for compact stores. Driving out all stores until a few left is name of the game for them.

If all they do is source Chinese goods and collect profits for US, I don't see how useful they are for India. Investments in high technology companies are much more useful than investments in old technology industries. Given enough freedom India's own marts can develop as much efficiencies (if not 100%) as Walmart.

[Singha]

so in the US have the smaller neighbourhood walmarts been able to drive the other local groceries or 7-11s out of business?

[Theo_Fidel]

so in the US have the smaller neighbourhood walmarts been able to drive the other local groceries or 7-11s out of business?

Yes.

In my area when neighborhood Wal-mart moved in Dillons, Hy-Vee and price chopper in the area all closed. Only one still around is Aldi's but that is really limited.....

When the super center down the street started selling gas the quik-trip and 7-eleven on the street moved on.

Its the oddest thing that Indians are very relaxed about this while USA types are warning folks to be careful.

USA can afford to run a massive $500 billion deficit with China, does India have the strength to run even a $50 billion deficit with China. I guess we will soon find out.

[member_23629]

so in the US have the smaller neighbourhood walmarts been able to drive the other local groceries or 7-11s out of business?

In 10 years since Walmart entered Mexico, it has captured 50 percent of the retail industry and driven many manufacturers out of business because they cannot supply goods at the rate demanded by Walmart. Walmart then switches suppliers or imports from China.

[Gus]

I am ambivalent about WalMart. I don't think its all doom and gloom if WM enters India.

Their US model won't work. So they would have to come up with something else. If that something else is a good model, then we would see competition for emulating that good model and that should be good for the industry - no?

If what they come up with does not work, then what goes of our fathers onlee - no?

I doubt they will be able to undercut prices, lock down and squeeze suppliers and generally do all the bad practices that they are accused of in the US. Here in India, street power is a factor. Govts change and policies are changed wholesale, unlike the US where companies can lobby for a law to their advantage and get to keep the advantage they have because of a 'law is the law and we have to obey it' culture there.

[member_20317]

Theo ji, we really are relaxed. Primarily because we know that quite a few of urban centres now prefer this kind of lifestyle and they can afford it.

Amongst Indians the business owners do have a squattors attitude and the buyers do have a hagglers. So even for Walmart types the going is not exactly easy. We hope to be in charge before Walmarts of the world can get in charge of us for good. Besides Gurgaon and Banglore people do have somewhat different priorities in terms of an efficient life.

About the arguements saying it will have a beneficial effect, my take is that they are all entirely wrong.

Efficiency in these businesses are not only on account of better procurement, storage and technology. Had that been the case, it was a dead decision. There is a push :
1. to get the inventory into the hands of the customers to save on storage
2. to amortize techology over larger number and value of transactions,
3. basically arm twist the vendors
4. attract capital based on valuations instead of true efficiency

So poor people who have no use for 20-30 kg Atta all at once since they do not have the proper storage capacity will end up buying a refrigerator before they can buy better reference books for their kids. What is the point buying Atta 10-20 Rupees a kg cheaper only see 10% of going waste by month end. This applies to pretty much every item of merchandise. I was handed over a ketchup packet for free once that lasted me about 6 months and even then I had to throw it with 20% inside. Even the 80% we consumed we did it because it was food and did not feel like throwing away an eatable. I personally have my house filled with chinese plastic because my in laws would not get the message and they have more money to spare then they can save or have the wits to invest. Now my elder kid thinks more of these silly gowns/garments are good. Even my wife does not agree when I suggest that we need to cut down on it all. I do tell her that if any, absolutely any of the greats ever consumed like a pig, I would wish the same for my kids. She still won't listen. And its not like this is only with me. I am sure if you do a 5S of your home you will end up throwing out 50% of all the stuffing.

There is another side to it too. Globalised systems are already here. And foreigners own it. Now Indians can either own it, manipulate it and kill their competition or they can get themselves counted out. One may or may not believe in a horoscope but if ones future father in law does, then one must begin to learn what a good horoscope looks like. Whether you like the person you deal with or not, you got to do business with him, whether you want to compete him out of existence or to establish a cooperative relationship. Basically a guy in Gurgaon will buy nonsense. He may as well buy it from me. But for me to reach a point where I can peddle my nonsense under my brand I need to learn from the stalwarts of the business.

This excessively consumption based life cannot however lead to any good in the overall analysis. Problem is the time for a more holistic thought at macro level, may already be over. So its all really down to personal choices now.

[amit]

It's interesting as to how the decision to permit 51 per cent FDI in multi-brand retail has been broken down into something that's very simple and easy to demonise - that is that this decision seems to have been done to help Walmart and Walmart only. In many ways having an clearly identifiable "enemy" whom nobody like anyway made synonymous with the proposal makes it easier to dish this measure.

However, in the interests of a fair discussion one should consider some other points:

1) Walmart isn't the only show in town, there are other brands like Tesco for example. This in case the point slipped from anyone's mind.

2) Walmart has had a very mixed record in its global operations - it has had to close shop in places like Korea and Germany. Interestingly other brands have been quite successful in these market. In a place like Malaysia Walmart has hesitated to enter the market because there are very strong and well-established local brands.

3) The example of Mexico should be looked at with one rider IMHO. And that is the land border with the US. In fact Canada-US-Mexico is easy ground for Walmart since road transport makes it very cheap for it to buy centrally and then move the stuff via highways. I wonder if folks here have considered that? It's interesting that Brazil - with which India can and should compare itself - has a thriving organised multi brand retail sector despite Walmart's presence in Brazil since 1995. And you know what? The Santiago-based Cencosud seems to be doing pretty well despite Walmart.

3) It should be noted that even if Walmart enters India it will be doing so with 51 per cent partnership with Bharti. Now we can say Walmart is out to "destroy" Indian traditional retail or bribe officials as the recent allegation is against it in Mexico, would Bharti be in cahoots with them? And do you think local Indian brands like Big Bazar, Pantaloons, Spencers would wither away the moment they here the W name? Isn't that thought rather far fetched?

4) The point about Chinese goods flooding the market. I would like to know, should we use a future tense when saying this or a present tense or maybe even a past tense? Several years ago, when I was in India, I wanted to buy a Ganesh idol to put on the dashboard of my car. You know what, I visited several Mom and Pop shops in Kolkata - you know the type that are supposed to go bust the moment Walmart enters India - and I couldn't find a single idol that was not Made In China. Yup folks Ganesh idols and just about any other idol that you care about is Made in China in places like Guangzhou sweatshops and brought in by enterprising Indian businessmen. As this is true for many other non perishable stuff that you buy from your local kiranas. So it is a present and continuing problem, not something that will start if Walmart opens stores in collaboration with Bharti.

5) The value of multi-brand retail lies not in wide aisles and an air-conditioned shopping experience. If that were the case then heck India doesn't need it. It lies in their expertise in developing worldclass supply chains and any investment they make in India, the major portion would go into developing these supply chains which is the lifeblood of any retailer. Make no mistake these are high tech, top class management entities that can't just be developed without the experience and knowhow that global majors have. It's just a fact of life - unfortunately.

6) This lead to the final point. The elephant in the room that nobody is mentioning is the fact that 30 per cent of our agricultural produce is wasted due to the lack of storage facilities in the primitive and corrupt Mandi system that we have today - which has absolutely no incentive to maximise thru put today; in fact the more the supply constraint the better it is for the middleman Mandi thekedar. The global norm for wastage is at a maximum 5 per cent. Recall the periodic shortages that we have that hits our food inflation (remember the onion crisis anyone?) and then imagine what a 25 per cent increase in supply -without a corresponding increase in agri output - could do to food inflation. Imagine stuff produced in one part of India moving seamlessly in a couple of days to other corners of India. Don't you think that's going to fight food inflation in a far more effective manner than policy diktats from the GoI? The caveat is of course that this would not happen overnight but one has to start somewhere. To say FDI and global brands in retail is useless is missing the point completely, IMO.

Having said all that I do agree that FDI in retail is no silver bullet. One has to wait, see and hope that rules are crafted properly and checks (including local sourcing) are put in place. But that's a question mark on proper implementation and not on the merits or otherwise of the proposal.

JMT

[member_20317]

amit ji, w.r.t. the "high tech" bit, well Indians and quite a few at that have already done it all without even the Gora getting a lookin. And these Indians did it with all the bells and wistles (quality, supplychain, MBAs etc.). The only problem is all this was done by different companies in different areas. So instead of supporting a structure that can get these companies to change further by way of business consolidation (something for which they already have a proven case) the Indian system somehow ends up getting in FDI. The TINA working in favour of the Chinese that you invoked through Ganesh episode, is a micro manifestation of the same thing. Indian business (specifically the nimbler faster smaller Indian businesses) are not being given priority, instead the organised businesses with string pullers employed as VPs are calling the shots. Bharti off-course wants a foreign partner in Walmart. They have their fair share of old boys networking types in their VP bench strength. Same goes for other foreign businesses and their Indian Partners. And this 51% cap is all bull. Any reasonable Lawyer/CA/Management type can tell you how to structure a deal. A lot of mutual backscratching is called business thesedays. Every single facet of business can be turned into a fungible securitizable book entry (outside the books its even easier). Business deals are all entirely capable of being put into a turnstile.

My view is that we need a proper logical extention of 'daridra narayan' in every walk of life. Nobody on BRF will advocate for making a poor man measure up to a richer mans prejudices, amongst us Shudras. Everyone on BRF will agree that a rank and file of Army should not be sacrificed for the whims of a General with Nepolionic ideas, when it comes to Kshtriyas. Not one man on BRF will avoid the ideas of an OIT wala merely to be subserviet to Witzels of the world, when it comes to Brahmanic ideas. The same way smaller businesses should not be at the mercy of organised cartels, amongst Vaishyas. The FDI in retail is mostly a Portfolio management decision to get the Neta log ka money into property at even higher multiples, now that the easy pickings in residential projects are going out.

amit ji, I am sorry to ruin your day with the following choice of words but unfortunately I am unable to figure out any other way. You see about 30% of any food consumed also gets excreted from human body as bodily waste. Ergo the 30% food wasted in Mandi system will also require the same kind of disposal systems. You must see trucks of solid wasted Bhaji Tarkari being shipped out of the Mandi system. But you don't because this much is not wasted. Infact the produce that begins to get spoiled at farm level itself is also consumed by the poor shopping at the closing hours of Mandi just before the Mandi walas have to prepare for the next days 4 am trucks bringing in fresh supplies. The 30% waste you are talking about are analytical studies based on statistics. Sir Pratyaksh ko pramaan ki jarurat nahi parti. These studies are Pramanic, what is Pratyaksh before you.

Also as you said amit ji, the proposal itself is not much. What is important is what we are going to loose because of this. With this one stroke Kangressis have again achieved the following:
1) The focus is nowhere near the efficiency gains for the smaller nimbler businessmen
2) Our padha likha people begin to argue for/against FDI. The educated classes loose their focus and are made to go into a race for International sensibilities.
3) All the focus on corruption issues is out.

No wonder MMS is suddenly looking like a Sikh. He will not reverse this decision. He and his kind desperately need this before 2014. To create a preceeding law wherein deals can be struck in a legally enforcable manner before the next government can get round to plugging the specially created loopholes.

It is the nature of business to minimise the losses. The markets will welcome this move. Some positive move is better then no move, on policy front. But give them a proper option of Swadeshi businesses and they will come to you not just with their monies but with their minds.

[amit]

Ravi ji,

Its seems we are talking past each other instead of with each other. What to do, I'm a plebeian onlee and hence not so much into philosophical mulling. For that reason I trust empirical reports like the Crisil one which said there is 30 per cent wastage of our fruits and vegetables output each year which the research agency estimates translates, in dollar terms, to about $12 billion, every year.

Here's a link (not to the Crisil report but related) that you may find useful.

[Aditya_V]

I am For FDI in Retail but stronger Anti- dumping duties on CHinese Imports. I think that would benefit everyone and still keep the Kirana shops also in Business.

[nakul]

The only way to stop is to test a nuclear bomb on Indian soil. That will stop the Chinese aggression & keep the American investment flowing

[Singha]

ibnlive:

Hapur: The SMS from Sunhara Walmart is the gateway for modern retail and better prices for 54-year-old Santosh Lata and 150 other farmers of Hapur on the suburbs of Delhi. Santosh and many other women like her get on to harvesting vegetables from their farm, load them in bullock-cart and bring to a collection centre. The project is funded by the Walmart Foundation.
Santosh says, "Earlier we used to send the vegetables to mandi. It wasn't good. Sometimes we would get Rs 50, sometimes Rs 100. We would not earn any profit. Bharti Walmart has helped us earn profit and we are very happy with it."
In just a matter of six months, the project has brought 800 such women farmers from eight villages in Uttar Pradesh under this programme.
When MNC retail chains buy directly from farmers, something that Bharti Walmart is doing here in Hapur, then the need of middlemen or the commission agent gets eliminated which saves these farmers from lot of botheration and wastage of their product.
In a usual supply chain, the farmer who does the maximum investment and puts in all the hard work gets just about 20 per cent of the whole price and the commission agent takes about 45 per cent of the share.
Santosh is getting paid Rs 3300 for 4 days' supply. In mandi she would have earned not even half of this amount
End users also have an advantage as quality is strictly taken care of.
Laxmi Jan Seva Sansthan secretary Neelam Tyagi says, "Earlier the farmers were growing vegetables at their level. But ever since ASI, Bharti Walmart have come, the quality of the produce is being taken care of. Harmful chemicals are not used. The quality of the vegetables here is differnt."
As the government puts FDI in retail on hold, there are some who are seeing value and freedom from middlemen in modern retail.

[Abhijeet]

If Didi were to swing by this forum I'm sure she'd be very pleased at the level of support she has here. Many (not all) of the arguments are also of an intellectual level she'd be very comfortable with.

To quote a few examples (not enough time to do this exhaustively):

amit ji, w.r.t. the "high tech" bit, well Indians and quite a few at that have already done it all without even the Gora getting a lookin. And these Indians did it with all the bells and wistles (quality, supplychain, MBAs etc.).

If the Indians have figured everything out, there's no chance of the "goras" putting anyone out of business. So what harm is there in having them here?

Unfortunately, no, supply chains of the sophistication that exist internationally are not yet present in India, or we wouldn't be seeing the high produce wastage percentage that was the starting point of the discussion.

So poor people who have no use for 20-30 kg Atta all at once since they do not have the proper storage capacity will end up buying a refrigerator before they can buy better reference books for their kids.

Again the concern with what people "should" buy, as decided by the wise mandarins who post on these forums. As I've said before, India is decades away from a situation where most people over-consume anything -- heck, we have a long way to go to simply get to the global average in terms of per-capita consumption of just about everything. More products within the reach of more people = overwhelmingly good at this stage of our development. Worrying about over-consumption or the "wrong" type of consumption is talk that's just completely divorced from reality.

People are quite capable of deciding what makes sense for them to buy without anyone having to artificially restrict their choices.

I'm afraid WalMart is not the solution to all our problems. These people will continue to be poor, WalMart or no WalMart. Its efficieny, cost cutting will decrease jobs and to the list of the poor. So WalMart is a double whammy. People who have money will shop at WalMart and no, WalMart will not subsidise food so I don't know why poor will have a better chance at getting food here.

Yes, Walmart doesn't magically bring people out of poverty, in the same way that it also hasn't resulted in world peace or put a man on Mars. What it does do is drive down prices, making more goods affordable for more people. In that way, it makes people "less poor" because they can afford more goods than they would have otherwise.

This is a negative for people who are involved in marking up product prices for no particular reason, but good for everyone else. In other words, it's a huge net positive.

If we wanted to do away with efficiency and cost-cutting, then we should stop using computers, cars or any industrial tool. This is an old and tired argument that has repeatedly been proven false. A country at India's stage of development needs all the productivity enhancements it can get -- that is the only way we get rich.

The way to increse competition is to lower the price of entry. not increase it. People who should not have to improve storage facilities, build chains, source large quantities and rely on govt infrastructure will get squeezed out.

Brilliant. So companies should not have to invest in all the parts of their operation that actually allow them to run, because it costs too much money for the average rural Jai to do so.

Let's apply this argument to some other industries.

I believe the airline industry has too high a barrier to entry -- heck, I need to buy multimillion dollar planes to start my own airline! Let's make those fancy planes illegal. Only bullock cart operators are allowed to transport people from point A to point B, because that way the cost of entry is low enough for anyone to start their own "airline".

I want to start a manufacturing plant, but all that shiny machinery is just too expensive! Let's make a law that everything has to be made by hand by fourth-grade dropouts, so that anyone can start manufacturing anything they want.

Getting a medicine degree is out of reach for 99% of Indians -- so can we please let anyone start their own medical practice?

--------------

Ultimately, I think the federal structure of India, if allowed to work in this case, will have a large role to play in convincing people of why international retail makes sense. Let the states that want it get the big retailers competing for their consumers' wallets, and let the people of the other states ask themselves why they too should not have the same abundance of choice available to them. My guess is that within a few years we'll see most states quietly allow these retailers in.