Walmart comes to India: Can mom and pop stores play with the big boys?
Paul Prescott, Shutterstock
Shopping in India has never been like getting groceries in the United States.
“If we need toiletries, groceries, or even fish, meat or chicken, we just call down to the local kirana,” says Ruksana Hussain, an American from India who returns to her homeland regularly.
Within minutes the groceries are delivered by the shopkeeper, the same shopkeeper who has delivered items to Hassain's family since she was a girl. Kirana is the Indian version of a corner store and kiranas are where most Indians do their grocery shopping. There are more than 14 million of these stores in India, 96 percent of which are less than 500 square feet.
But the way Indians shop is about to change forever.
For years the Indian government has protected corner shops from foreign big box competitors. In a controversial effort to jump start a faltering economy, Indian Prime Minister Manhohan Singh recently announced that the government will allow foreign retailers a majority share in the shops they set up in the country. Within hours of the announcement, Walmart revealed plans to open up stores in cities around the country.
There is vigorous debate whether or not Walmart will be good for the developing nation. Advocates say Walmart will help India modernize its food supply chain, eliminate waste and reduce prices for millions of impoverished people. Since more than 30 percent of India's population lives below the international poverty line of $1.25 per day, there is hope that Walmart's presence in the region could have a profound impact in the global fight against poverty.
But critics warn that benefits of having Walmart will not offset the retailer's devastating impact on the millions of shopkeepers who make up 14 percent of the Indian economy. Allegations that surfaced over the weekend of violations of the U.S. Foreign Corrupt Practices Act in Walmart's India division may give in-country critics more ammunition in their efforts to oppose the retailer.
The Walmart effect
Walmart’s opponents argue that the retailer will harm the small, family owned kirana, or corner stores, that currently dominate the Indian retail market.
“We’ve seen the devastating effect that Walmart has upon workers and small retailers in America,” said Michael Bride of the North American United Food and Commercial Workers International Union in a statement released after Walmart announced its plans for India.
A Census Bureau study of the U.S. retail sector from 1976-2005 found that big box retailers like Walmart had a negative impact on small stores and overall employment growth.
Other countries have experienced similar effects. Walmart arrived in Chile in the early 1990s. Between 1991-95, about 22 percent of small food shops went out of business in Santiago, according to a 2008 study by the Indian Council for Research and International Economic Relations. The impact was even greater in Argentina, where a third of small food retailers closed.
It is unclear whether the same thing will happen in India, officials say.
“Mom and pop stores can play with the big boys,” said Swaminathan Aiyar, a research fellow at the Cato Institute. "(They) already operate with very low overhead,” he added.
Small store owners benefit from low rent, desirable locations, low labor costs and the ability to offer their customers highly personalized service.
Improving the lives of farmers
Sixty percent of India’s population works in agriculture, and farmers stand to make significant gains from foreign investment according to Aiyar. There are two primary ways farmers could benefit — higher prices and improved yields.
Indian farmers are often required by law to sell their crops to wholesale traders at a set price.
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