This article is part of Next, The Globe's five-day series examining the people, places, things and ideas that will shape 2013.
Picture this: you’re a working mum in Hyderabad (or Delhi, or Mumbai). The kids leave on the school bus and you take stock. There’s nothing in the fridge that could be assembled into dinner – no milk, and no rice flour for idli.
Your son has a cricket game tomorrow, but he’s lost his jersey. Your mop-haired daughter needs hair barrettes, and exercise books for school. And on his way out the door, your husband hollers that there is no shampoo left.
Better hit Walmart on the way home from work, right?
Well, no. Today, you’ll have to get vegetables from a man with a cart in the market a five-minute rickshaw ride from home; buy milk by lining up at the co-op booth at the end of your block; and hunt out barrettes in one tiny store near the market and notebooks in another. Then after work you’ll need to take the metro across town to a sports store, which sells just one brand of everything, for the all-important jersey.
But that could soon change. After a bruising political fight that nearly brought down the government, the Indian parliament has passed legislation to permit foreign direct investment (FDI) in multibrand retail. In other words, it threw open the country’s doors to Walmart and other giant international retail chains.
Passage of this law is being taken to mean that the India growth story is once again on track. “The steps that we have taken recently are only the beginning of a process to revive our economy and take it back to its trend growth rate of 8 to 9 per cent,” Prime Minister Manmohan Singh told a conclave of major business leaders after the law made it through parliament.
Reforms passed earlier this year allowed FDI in single-brand retail, and many foreign firms are already here as minority owners with an Indian partner. Walmart, for instance, already has a cash-and-carry business dealing to traders, as a minority partner with the Indian conglomerate Bharti Enterprises.
But Walmart retail stores and big supermarkets such as the British chain Tesco or the French Carrefour – which have exploded into the rest of the Asian market – have until now been barred from direct access to India’s 1.2 billion shoppers. The next question is, now that it’s legal, will they come?
The multibrand retail law has taken on outsize importance. It cost the government a couple of key coalition partners, who said the onslaught of foreigners would crush local business. It came to symbolize the economic reform agenda on which the ruling Indian National Congress won a second term in 2009 and has since completely fumbled, sending growth numbers free-falling and creating a thick cloud of gloom that drove off investors, both foreign and domestic.
Ray Titus, who teaches marketing at Alliance University in Bangalore, described the reform as a clear signpost. He said: “This is India moving away from being that ‘nation of shopkeepers’ to becoming more formal in the way it runs its businesses [and] more structured, and lessening the power of that middle-man lobby” that has blocked progress in everything from grocery stores to giant infrastructure projects such as airports and highways.
The law can break the “hegemony” of traditionally influential traders who flourished at the expense of producers and consumers, according to Prof. Titus. “This … is very important if India wants to be open to global business,” he said. “It’s not just retail. It’s everything – real estate, education, mining.”
The local business press has reported Walmart is looking at sites in Hyderabad or Mumbai for its first megastores, although Arti Singh, a spokeswoman for Walmart in India, said the company has made no decision if or where it would open here. The government of the national capital region, meanwhile, is pitching hard to have the first international retailers come to Delhi.
Those stores will not look like their counterparts in Canada, as Prof. Titus pointed out. Land acquisition is complex and difficult in India, although the government has a draft reform law in the works, and population density means international companies will have to tweak their business models to accommodate much smaller stores, possibly through franchising. Less than 10 per cent of the population owns a vehicle, so customers won’t be coming to shop in cars. The complete lack of any kind of cold-chain and refrigerated transport industry will shape what the retailers can deliver. And houses here are small, refrigerators are tiny by Canadian standards and electricity supply is unreliable. All of that will also shape what people will buy.
Nevertheless, these stores will bring a much wider range of products – 50 or 60 brands in a given category, instead of the current nine or 10, Prof. Titus predicted. Walmart and the others will likely deal directly with farmers, cutting out the middlemen who currently skim off the lion’s share of earnings, and whose inefficient market-gaming distribution systems cause huge amounts of what India grows to rot before it ever gets to the stores. Farmers today earn only an estimated 15 per cent of the sale price of their crops.
For Indian consumers, the entry of foreign retailers into the market will offer direct and indirect benefits. The big-box retailers may not be any cheaper than the neighbourhood shops, or kirana, as they are known, because the small shops tend to keep costs down by using unskilled labour and spending almost nothing on their operations. But the international chains will offer consumers a cleaner, brighter, more modern shopping experience, and Prof. Titus said that alone may lure them in.
India’s middle class – future Walmart shoppers – consists of about 325 million people, just a quarter of the population at best. Even if the other three-quarters won’t be shopping in the big foreign chain stories, though, the new retail landscape could benefit those people who are lower on the income scale. Most significant is the promise of higher earnings for the 52 per cent of Indians who are farmers. And other jobs would also be created. (Wal-Mart employs more than 100,000 people in China.)
Pulapre Balakrishnan, an economist who heads the Centre for Development Studies in Thiruvananthapuram, Kerala, argues that improved productivity will mean higher real incomes, and that in turn will drive new demand. “This is an important reform because it’s about engaging with the global economy,” he said.
THE CHANGING FACE OF INDIA
The Indian government instituted a recent flurry of reforms in an effort to revive the economy.
What has changedA special cabinet committee has been created to streamline approval for major infrastructure projects (more than 100 of them are stalled in the approvals process); part of the subsidy on the price of diesel has been removed; a cap was placed on the number of subsidized cooking-gas cylinders each household can buy; the banking law was amended to hike voting rights of shareholders; foreign investors can now own up to 49 per cent of airlines.
Promised but still to comeA synchronized goods-and-services tax replacing conflicting state regimens; a streamlined land-acquisition process; permitting foreign direct investment in insurance; reform of bank licensing.
Who wants in, now that the law allows foreign ownership?Tesco PLC, which is in India now with a minority stake in a handful of supermarkets; Carrefour S.A., which has two cash-and-carry distribution centres in India; Walmart, which has a minority stake in a national chain of business-to-business wholesalers; IKEA, which currently sources many products from India, says it will open stores here soon; J Sainsbury PLC says it is looking at India.
Editor's note: Target Corp. does not plan to open retail stores in India. Incorrect information in an earlier version of this article has been corrected.