India usually waits for foreign investors to set up shop before taking to the streets in opposition – as companies like Coca-Cola (KO) and Kentucky Fried Chicken have discovered in the past. But Wal-Mart’s (WMT) reputation precedes it to such an extent that protests have started even before it opens up. There were small but vocal street demonstrations when Michael T. Duke, Wal-Mart’s vice chairman, visited India in February to look at retail prospects.
Last week’s opposition became more vocal when Wade Rathke, a leading United States-based anti-Wal-Mart activist, came to oppose the company opening a wholesale business – showing how protest groups have gone international to fight globalization.
Wal-Mart was selected at the end of last year by Sunil Mittal, founder and chairman of Bharti Enterprises, India’s leading mobile phone company, to be his partner in a country-wide wholesale-retail venture. He had intended to link up with Tesco of the UK, but Wal-Mart offered a more impressive and faster investment rollout.
Rathke heads a U.S. community organizations’ group called Acorn, whose activities have included opposing Wal-Mart’s entry into Florida. He told a conference of traders and political organizations last week that he wants to “stop the corporate hijack of Indian retail,” and said the government should introduce blocking legislation that would catch big Indian-owned retail companies as well as foreign direct investment (FDI) by Wal-Mart and others.
This has broadened what was previously a straightforward debate over the role of FDI to include Indian retail companies that, up until now, have been encouraging opposition to FDI in order to buy time to build their businesses. Foreign retailers have been banned since the mid-1990s from directly investing in Indian stores, though franchise partnerships with local firms and wholesale (cash-and-carry) operations, have been gradually permitted. The restrictions historically stem from politicians’ fears of upsetting 15 million small mom-and-pop shopkeepers who account for 97 percent of $250-300 billion a year sales.
Opposition has been strengthened in the past couple of years by the big Indian businesses, and this has been backed by Communist-led leftist political parties. Indian companies opening retail stores include three large groups – Reliance, Tata and Birla – while long-established offshoots of two big multi-nationals – Unilever and British American Tobacco – are in distribution. The government wanted to relax the restrictions last year, arguing that this would give both consumers and farmers a better deal. Consumers would get improved quality at better prices. Farmers could bypass an inefficient and often corrupt government-controlled distribution chain and sell direct to supermarket chains that would help them grow better quality produce. That should significantly cut wastage – currently 40 percent of fruit and vegetables sent to urban markets rot on the way.
Kamal Nath, India’s enthusiastic commerce and industry minister, virtually promised foreign retailers that they would be allowed in by the end of last year. But the industrial and political opposition increased, and Sonia Gandhi, president of the Congress Party that leads India’s coalition government, called for small shopkeepers to be protected. A government-commissioned inquiry is now looking at the impact of supermarkets, and there is no prospect of Nath being able to relax FDI restrictions, except possibly for electronics and other specialist stores.
This has led Wal-Mart to exploit a policy loophole and plan a wholesale joint venture with Mittal that will provide procurement and logistics services for 100 percent-Bharti owned supermarkets. Tesco and other companies have been looking at similar side-door entries. Wal-Mart is therefore now being attacked for exploiting the wholesale loophole as well as for being an undesirable multi-national.
In an attempt to stop the development of supply chains that would provide supermarkets with better quality produce than small mom-and-pop shops, Rathke also appealed last week to farmers not to sell direct to supermarket companies. “We will conduct awareness programs at grassroot levels so that farmers don’t sell directly to any of these companies,” Rathke said in Mumbai. “Farmers need to understand the long-term plan of these corporates. Once a farmer is into this vicious circle, maybe two to three years down the line, he will be left with no option but to surrender his land to one of these corporate giants.”
Before Rathke arrived, various traders and other groups had been organizing protests against FDI of any sort in supermarkets. India’s leading communist party – the CPI(M) – is now finalizing a policy statement that will call for restrictions on the location of all stores and how fast they can proliferate, but it will only ask for price protection – not a ban – on supermarkets buying from farmers.
It is too soon to forecast how effective the campaign will be. Demonstrations are planned in August, and Rathke is expected back a couple of months later, but it seems unlikely this will seriously slow down Indian groups. Wal-Mart however is sure to be harassed through to the beginning of next year when it is expected to start operating. Mittal said a few days ago that the protests had been less than he had expected; but he may still come to regret switching from Tesco which arouses far less international passion.