Wal-Mart (WMT) is not alone in facing opposition to its plans for retail stores in India. In a foretaste of what could happen when it starts operations here next year, some 300 wholesale middle-men and street vendors armed with bamboo sticks last Saturday raided three stores run by Reliance Retail, the country’s fastest growing supermarket chain.
Claiming that the stores were killing their jobs, they smashed glass windows and ransacked a soft drinks bar in Ranchi, capital of the northern Indian state of Jharkhand. Their protests had been building for a couple of weeks and they were angry when, as they marched through the city, they found that the stores had been closed as a precautionary measure. People who went shopping today (May 14) found themselves protected by the Jharkhand Armed Police (JAP), a paramilitary force that fielded 20 guards at each outlet.
This was not the dream of Mukesh Ambani, chairman of Reliance Industries (RIL), one of India’s two largest business groups, when he launched a $5 billion country-wide chain of supermarkets five months ago. So far about 140 Reliance Fresh neighborhood stores covering a total of more than 370,000 square ft have been opened in 17 cities, directly linked with farms for the supply of fruit and vegetables.
This has especially upset middlemen who have traditionally handled the produce between farms and shops. Street vendors, who sell fresh produce from barrows, are also affected but Reliance allows them to buy direct from its depots in order to offset their protests.
Opposition to Reliance has built up in four states and, as often happens in India, vested interests and political parties are encouraging the action. In Ranchi, a group of wholesalers are said to be behind the protests and today they were backed by George Fernandes, a veteran politician and former defense minister who arrived in the city and pledged his support “against injustice.” In West Bengal a leftist political party will lose a political base if government-run wholesale markets are run down. In the southern states of Kerala and Tamil Nadu, local politicians are believed to be in the lead.
Unwittingly however, this has focused attention on an issue which the Indian government has conveniently ignored until now – that there is no real difference between the threat to existing jobs posed by foreign retail groups – which are banned from direct investment – and Indian groups like Reliance which operate without investment restrictions.
Both offer much-needed efficient retailing to India’s bazaars with new levels of quality and low prices. Both will also eventually replace many of the existing small players, who range from wholesalers and other middle-men to mom-and-pop shops and street vendors. The immediate risks to jobs have been exaggerated – many mom-and-pop shop owners say they do not lose business when a Reliance Fresh store opens nearby – but in the long term there will be job losses.
This is the problem that the government should be tackling instead of tinkering with regulations that currently allow companies like Wal-Mart to set up wholesale operations linked to Indian partners’ retail stores. Arguably, if companies like Reliance can modernize the retail industry themselves, there is no need to allow foreign direct investment in at all. Or, if FDI is needed but there is concern about job losses, then the speed at which both Indian and foreign groups open up could be restricted. Either way, a coherent policy is needed.