02-16-2005, 04:28 AM
<b>Commentary: India pays steep price for excluding foreign</b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->India overtook Hungary, China and Slovakia to take the No. 2 slot behind Russia on the 2004 Global Retail Development index, compiled by the consulting firm A.T. Kearney. The index ranks emerging markets by the size of the opportunity they present to companies like Wal-Mart Stores, Carrefour and Ikea.<!--QuoteEnd--><!--QuoteEEnd--><!--QuoteBegin-->QUOTE<!--QuoteEBegin-->That restraint, like much of what remains of India's socialist past, has been perpetuated by outmoded political discourse, which feeds on the fears of the neighborhood shops that control 98 percent of the country's $250 billion retail industry.
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As a result, more than a decade after India began opening up its economy, there is still no Wal-Mart store there, even as the world's biggest retailer added 10 outlets in China last year, taking its total there to 43.
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Ditto for Carrefour. Europe's largest retail chain is absent from a country where discretionary consumer spending is $178 billion a year. That is almost six times the gross domestic product in Slovakia, where Carrefour is present.
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Ikea, the world's biggest home-furnishings retailer, has four stores in Russia. The Swedish company has yet to open one in India.
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After years of speculation that an end to the ban on foreign ownership was imminent, a government minister this month said that a new retail-investment policy would be announced in two months. The rules are expected to be relaxed just enough to give a foothold to global majors without upsetting the government's communist backers too much.
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Further liberalization may happen in small steps.
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"We will have to ensure that foreign investment in retail doesn't replace or displace existing retailers," Trade Minister Kamal Nath said in New Delhi.
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With 7 percent of India's 400 million working-age people deriving their livelihoods from retail, displacement is not a minor issue. At the same time, the concern shouldn't be allowed to become a bugaboo.
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Mohan Guruswamy, chairman of the Center for Policy Alternatives, a New Delhi-based research group, wrote recently in the Hindu Business Line newspaper that if Wal-Mart opened a store in each of India's 35 biggest cities, and if these stores replicated the U.S. chain's employee productivity, 432,000 people would lose their jobs.
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The other argument against foreign direct investment is the "infant industry" case. How will domestic chains like Crossroads and Shoppers' Stop compete with the likes of Wal-Mart, which, as Guruswamy says, "will be able to sustain losses for many years till its immediate competition is wiped out?"
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If Wal-Mart is such a big threat, how come half of the sales in the $3.8 trillion U.S. retail trade industry are still generated by single-store businesses more than four decades after Sam Walton opened his first store in Rogers, Arkansas?
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Conventional wisdom says that not all foreign direct investment is equally wholesome. The type that comes in seeking to efficiently utilize a country's natural resources and labor is good; the kind that only seeks a market - like in banking or retail - should be shunned.
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"There is a general misconception that market-seeking FDI in domestic sectors such as retail yields little development impact," says a recent World Bank study by the researchers Vincent Palmade and Andrea Anayiotas. "The opposite is true."
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"FDI in retail," the authors explain, "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."
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<b>It is for India to decide if it wants to create jobs for tens of thousands of shop assistants, cashiers and floor supervisors, or so confine investors like Tesco that they can employ only a few hundred engineers. That should be an easy choice in the world's biggest democracy. Surprisingly, it isn't.</b>
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<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->India overtook Hungary, China and Slovakia to take the No. 2 slot behind Russia on the 2004 Global Retail Development index, compiled by the consulting firm A.T. Kearney. The index ranks emerging markets by the size of the opportunity they present to companies like Wal-Mart Stores, Carrefour and Ikea.<!--QuoteEnd--><!--QuoteEEnd--><!--QuoteBegin-->QUOTE<!--QuoteEBegin-->That restraint, like much of what remains of India's socialist past, has been perpetuated by outmoded political discourse, which feeds on the fears of the neighborhood shops that control 98 percent of the country's $250 billion retail industry.
.
As a result, more than a decade after India began opening up its economy, there is still no Wal-Mart store there, even as the world's biggest retailer added 10 outlets in China last year, taking its total there to 43.
.
Ditto for Carrefour. Europe's largest retail chain is absent from a country where discretionary consumer spending is $178 billion a year. That is almost six times the gross domestic product in Slovakia, where Carrefour is present.
.
Ikea, the world's biggest home-furnishings retailer, has four stores in Russia. The Swedish company has yet to open one in India.
.
After years of speculation that an end to the ban on foreign ownership was imminent, a government minister this month said that a new retail-investment policy would be announced in two months. The rules are expected to be relaxed just enough to give a foothold to global majors without upsetting the government's communist backers too much.
.
Further liberalization may happen in small steps.
.
"We will have to ensure that foreign investment in retail doesn't replace or displace existing retailers," Trade Minister Kamal Nath said in New Delhi.
.
With 7 percent of India's 400 million working-age people deriving their livelihoods from retail, displacement is not a minor issue. At the same time, the concern shouldn't be allowed to become a bugaboo.
.
Mohan Guruswamy, chairman of the Center for Policy Alternatives, a New Delhi-based research group, wrote recently in the Hindu Business Line newspaper that if Wal-Mart opened a store in each of India's 35 biggest cities, and if these stores replicated the U.S. chain's employee productivity, 432,000 people would lose their jobs.
.
The other argument against foreign direct investment is the "infant industry" case. How will domestic chains like Crossroads and Shoppers' Stop compete with the likes of Wal-Mart, which, as Guruswamy says, "will be able to sustain losses for many years till its immediate competition is wiped out?"
.
If Wal-Mart is such a big threat, how come half of the sales in the $3.8 trillion U.S. retail trade industry are still generated by single-store businesses more than four decades after Sam Walton opened his first store in Rogers, Arkansas?
.
.
Conventional wisdom says that not all foreign direct investment is equally wholesome. The type that comes in seeking to efficiently utilize a country's natural resources and labor is good; the kind that only seeks a market - like in banking or retail - should be shunned.
.
"There is a general misconception that market-seeking FDI in domestic sectors such as retail yields little development impact," says a recent World Bank study by the researchers Vincent Palmade and Andrea Anayiotas. "The opposite is true."
.
"FDI in retail," the authors explain, "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."
.
<b>It is for India to decide if it wants to create jobs for tens of thousands of shop assistants, cashiers and floor supervisors, or so confine investors like Tesco that they can employ only a few hundred engineers. That should be an easy choice in the world's biggest democracy. Surprisingly, it isn't.</b>
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