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Walmart – Boon but with Caution

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The latest debate on FDI in retail & agriculture reminds us of eminent Assamese filmmaker Jahnu Barua’s classic Xagoroloi Bohudoor (It’s a Long Way to the Sea). The much-acclaimed movie beautifully showed the story of a boatman who feared to lose his only source of income when the government decided to construct a bridge over the river. By all modern means, we cannot think of not building a bridge just for the sake of the boatmen’s job. FDI in national retail or at a more local level, – the proposed Wal-Mart opening up in Guwahati, too, is a similar story.

What’s going on today-an example:

Without going into the debates of whether UPA did the right thing or Mamata Banerjee is an opportunistic politician, let us limit our thoughts just to Assam for a while. For a state that earns more than one-third of its income and employs more than 65% of its workforce in agriculture, Assamese farmers were able to sell just about 0.3% of the total rice produced in the state last year to FCI. A survey by North East Social Trust (NEST), Food Corporation of India (FCI) procured ONLY about 12,146 tonnes out of about 4,007,000 tonnes of rice produced in Assam. Not just this, furthermore, – our Stepmother in Delhi and Stepbrother in Dispur spent about Rs 30,000,000,000 in the transportation of bringing in food grains into Assam from outside states. That’s a lot of money wasted. There are only 11 procurement centers in Assam, unlike in states like Haryana or Punjab where there are procurement centers every 8-10 kms.

To make matters further worse, there is no minimum support price (MSP) defined due to which farmers sell their grains to middlemen at dirt cheap prices. For every bigha of land, a farmer invests on average Rs. 2755 for paddy and in return it yields just Rs. 2400! One does not need to be a genius to figure out why this BIG Injustice to farmers of the state. It serves two purposes; firstly the state loses its stand every year in becoming less and less self-independent in food and secondly it creates a consumer state for the profit of bigger states with more production. If anyone does not agree, please find out the answer to what genuine reason leads FCI to buy just 0.3% of the total rice produced in Assam and get 1,301,485.89 tonnes from other states.

Foreign investment in Assam

Coming back to FDI, we have to respect the fact that Assam saw one of the biggest growths in Asia during the late 19th century only because of Foreign Investments. The pride and obsession of the Assamese over his tea and oil today had resulted out of the European investments in this region. As mentioned in the article Global Investment – Impact on PRE and POST Colonial Assam published earlier in Times of Assam, the Indian State started using Assam only as its hinterland with its neo-colonial policies post-1947, esp. after losing out to China in 1962. Even after the economic liberalization from 1991, the Indian state never tried to maintain the priority and trust applied by the British to boost global investment in Assam.

With the new policy of Foreign Direct Investment in retail and also the one in Agriculture, Guwahati might soon see a Wal Mart or similar other stores. For those of who do not know Wal Mart, – it is an American multinational retailer corporation that runs chains of large discount department and warehouse stores. It is said to be the biggest private employer in the world with over two million employees and is the largest retailer in the world. It has a presence across the globe but has mixed results in some countries including Germany and South Korea where it was unsuccessful. In the past, Wal Mart was known to have swept the market and customer base with the unbelievable discounts offered by them. Having done a detailed case study on the Wal Mart Way during my early days in the corporate world, this writer strongly believes that the same policy of discount and making fast customer base would apply in India too if Wal Mart makes their debut entry.

So, how would a Wal Mart help us?

  • A Walmart or a similar big store will ensure procurement, at least of food grains, fruits and vegetables directly from farmers offering them higher income. At present, the price that a farmer gets for a kilo of Brinjals or rice is about half of what it is sold to by vendors and retailers to final consumers. For example, the price that one pays to get a kilo of Brinjals in Singimari Market (an hour away from Guwahati) is less than half of what one gets it in a Guwahati market. By engaging local producers, the farmers would be provided a much broader consumer set and more fixed range of price.
  • At the start of this piece, we have seen how the farmers in Assam are facing a biased monopoly to create a consumer state. With a foreign player entering the market who would only invest professionally to make a profit and nothing else, it is obvious that they would not spend millions on transportation costs to bring food, vegetables, and fruits from outside but invest in local production more. For example, even if there are no FCI procurement unit farmers can probably sell at higher prices to the big retailers.
  • More completion, according to economics creates a lesser monopoly and more production. With a pressure created by a Walmart kind of store, competition and hence the quality of products would increase with more cost efficiency. For example, one can compare the days when Reliance was the only mobile provider in parts of Assam versus days later when we saw other competitors to Reliance.
  • Organized retail is known to provide a higher quality of goods on account of the predefined and stringent standards adopted by the retailers. As of now, we empty our pockets for poor quality fishes or vegetables just because there is someone available ready to pay more in the local markets. Yes, it does tend to destroy the trust factor we have for our known seller’s words such as Bhal Maas (good fish) or Borhiya Saul (excellent rice), but we have to get out of that mentality to more acceptable quality standards anyway sooner than later.

Caution to be applied:

  • The history of foreign investment in Assam shows that thought it created pride factors like Tea, Oil or Railway Tracks as early as 1881, it never helped the growth of domestic capital for the local Assamese people and the economic conditions hardly improved. It created other problems like demographic transformations with the immigration of labor force,- the influx of large scale immigrants from East Pakistan started in 1911, a problem that is now haunting us like never before. While global investments are welcome to Assam, it has to be MADE SURE that no further demographic transformations happen. Land rights have to be settled parallels and a big retailer allowed to run business only if It fulfills conditions such as:
  1. Employ 100% local or state units for agricultural products which could be produced locally
  2. Employ 90% local or state labor up till middle management. Middle Management and Leadership, can be outside of the state.
  3. Their Corporate Social Responsibility Activities should focus on local issues and helping the needy
  • The big retail store such as Walmart will sell everything, from vegetables to the latest electronic items, at extremely low prices that will most likely throw away local stores selling similar goods. Since stores like Walmart are expected to source its raw materials from abroad and procure goods like vegetables and fruits directly from farmers at preordained quantities and specifications. This means a foreign company will buy big from our country and abroad and be able to sell low which will in turn completely disintegrate the already established supply chain. One has to review what happened to countries like China, Malaysia, and Thailand, who opened their retail sector to FDI in the very recent past,- they have all been forced to enact new laws to check the hyper-expansion of the new foreign malls.

The Business Monitor International (BMI) India Retail Report for the fourth-quarter of 2011 forecasts that the total retail sales will grow from US$ 411.28 billion in 2011 to US$ 804.06 billion by 2015 in India.  Naturally, the Rs 18,673 billion (US$ 401 billion) Indian retail market which entails only 6% of itself as organized retail segment as of 2010 offers a great potential to be explored by domestic and international players.

Yes,- the risk of wiping our hundreds of jobs exists due to Walmarts and Targets, but this bold step has to be taken for it promises to control inflation, boost economic growth (which is at a slow pace now) and reduce monopoly in the existing market. However, entry of foreign players must be controlled with proper policy fine-tuning and with social safeguards. We don’t want something similar to the anguish of the boatman in Xagoroloi Bohudoor to haunt us. Nor do we want to be like the boatman’s son who only cares about his own ancestral property.

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Walmart – Boon but with Caution

By: Priyankan Goswami Read time: 8 min