I am now posting an analysis I did in 2012 when India was debating the issue of FDI in Retail business. Indian leadership did not appear to analyze the situation fully. When you deal with business leaders, you have to do a thorough analysis of the situation or landscape first. If you make assumptions, verify them and validate them.
I did the analysis on my own and sent it to several people in India. Later on, I condensed it and a shorter version was prepared. I posted it on this Blog. I will be glad to discuss how to do such analyses, if someone is interested.

FDI in Indian Retail: Can it be Beneficial to India?

Som Karamchetty [1]

Outline

Abstract

Background

Retail Industry in India

Retail Industry in the US

About Wal-Mart

Expectations Mismatch

Realistic Outlook

Conclusions

Abstract

Just as in many countries, the retail industry is a major sector in India although Indian retail businesses are mostly small and unorganized. It is generally believed that Foreign Direct Investment (FDI) in the Indian retail sector will bring organization, technology, and high performance logistics to the sector and will result in efficiency and economy. However, there is a genuine angst that unbridled entry of economically strong foreign retail giants will displace millions of owner operated small retail businesses and also result in the loss of jobs. This argument is countered by the government ministers that FDI will actually create millions of jobs and benefit the farm sector. As the largest retailer in the world, Wal-Mart figures in the discussions prominently.

This paper presents the arguments and describes briefly the characteristics of the retail sector in the US. The influence of global giants in the retail sector, like Wal-Mart, is likely to be significant and highly beneficial under certain conditions. But at the same time, there appears to be wrong impressions about the areas where these giants would influence the Indian economic sectors perhaps, owing to a lack of understanding of the roles of retail businesses in the West.

Background

In the last two decades, the Indian economy grew well and both the urban and rural consumers have had a better purchasing power. [2] The consequent demand for greater quantity and quality of goods and services provided new opportunities in the retail sector. The inadequacy of the domestic financial and technical resources attracted foreign retail businesses to evaluate investment opportunities and the regulatory regime in India. The impact of Foreign Direct Investment (FDI) in the Indian retail industry has been the subject of discussion in the media for the last many months. Each faction seems to state their preferred viewpoint rather than a comprehensive and objective analysis of the issue at hand.

Commerce Minister Anand Sharma was reported as having stated, “ … the government’s decision to allow foreign players in the retail sector will create up to 10 million jobs in the next three years, give better prices to farmers and have a multiplier effect on the economy.” [3] The news item went on to report, “Lack of investment in the logistics of retail chain has created inefficiencies in the food supply chain. Though India is the second largest producer of fruits and vegetables (about 200 mt), it has a very limited integrated cold-chain infrastructure, with only 5386 stand-alone cold storages, having a total capacity of 23.6 million mt, 80 per cent of this is used only for potatoes. … Large investments in the retail sector will also see gainful employment opportunities in agro-processing, sorting, marketing, logistic management and the front-end retail business.” There is an implication in the minister’s statement that FDI in retail will result in investments in the agriculture, food sectors, storage, and logistics beyond the subsectors in which US retailers usually invest in.

According to a report in The Hindu (DAVOS, January 28, 2012), “India on Friday assured global retail giants Walmart and Metro that its reforms agenda was well on course and the decision to put on hold Foreign Direct Investment in multi-brand retail is “just a pause,” forced by compulsions of coalition politics.” [4]

Economic times quoted India’s Industry Secretary, R.P. Singh, “India is moving quickly on a plan to open its $450 billion retail sector to global players such as Wal-Mart despite concerns about job losses among millions of small neighbourhood stores.” [5] Foreign retailers such as Wal-Mart [6], Carrefour [7], Tesco [8], Metro [9] want to invest directly in India's fast growing retail market, but the policy has so far been held up by political resistance. Currently, up to 40 percent of India's harvests rot because of inadequate cold storage and supply bottlenecks, a situation some economists say foreign money in supermarkets will help resolve. "The idea is that the multi-brand retail should be able to help us in addressing the infrastructure gap, so the back end infrastructure is very important for us," Singh said.

Economic Times also reported, “The world's largest retailer Walmart today said its investments in India will grow manifold if foreign direct investment regulations on multi-brand retail are relaxed in the country. Walmart said it will ramp up its investment here to strengthen supply chains and enhance direct linkages with farmers in order to provide "quality products at affordable" [10] prices to Indian consumers. "There would be manifold increase in investment by Walmart in India if FDI in multi-brand retail is opened up," Walmart India President Raj Jain [11] told reporters on the sidelines of a CII event here. Walmart currently works with a large number for farmers for direct sourcing of products. "We already work with farmers in the North and will soon start that in South too... We are doing as much as we can, but our investments cannot be monetised on the back of wholesale alone," he said. Through wholesale, the company anyway can not control the prices that end-consumers pay for the final products, he added.[12] These statements from Wal-Mart officials imply that they might invest in sub-sectors in which they may not have played prominent roles in the US. [13]

In an article in The Hindu, C.P. Chandrasekhar, states, “Large international retailers are bound to use the opportunity to get a share of the large Indian market. Foreign sales have been an important source of revenue for many of them amounting in 2007 to as much as 74 per cent in the case of Ahold of Netherlands, 52 per cent for Carrefour of France, 53 per cent for Metro of Germany, 22 per cent for Tesco of the United Kingdom and 20 per cent for Walmart of the United States. Walmart's 20 per cent too has to be seen in context: with $379 billion of revenues in 2007, it stood way ahead of Carrefour, which came in second with $123 billion in the global league table for revenues.” [14] [15] Since these international retailing companies are not charitable organizations, it is but natural for them to look for opportunities to gain a share of the market in countries where they operate. The important point for the recipient countries is to see if the entry of these companies benefits them. Professor Chandrasekhar further added, “With deep pockets and international sourcing capabilities, global retail chains will outcompete domestic players, displace jobs, and undermine livelihoods.” India has to make a choice if it would like to compete in the international trade arena or erect barrier and live in an isolated economy. From 1991, India has gradually competed in the information technology and manufacturing sectors and has been faring creditably. The question is if it can do well in the retail sector.

Emphasizing the significance of the retail sector to nation’s employment, Professor Chandrasekhar states, “The potential significance of this impact can be judged from the role of the retail and wholesale trade in generating employment in the country. According to the National Sample Survey Office's survey of employment and unemployment in 2009-10, the service sector category that includes the wholesale and retail trade (besides the much smaller repair of motor vehicles, motorcycles and personal and household goods) provided jobs for 44 million in the total workforce of 459 million.” [16]

Pointing out the severe impact on urban employment, Chandrasekhar says, “It is no doubt true that the impact of foreign-invested retail would be restricted to the urban areas since entry as of now is permitted only in cities with a population of more than one million. But this is where the employment in trade would be the highest. Twenty-six million out of the 44 million employed in the sector are located in urban areas. Many of these workers find themselves in the services sector (especially in the retail trade) because of inadequate employment opportunities in agriculture and manufacturing. Out of 71 million jobs in services in the urban areas, around 36 per cent are in the retail and wholesale trade and repair services. In sum, from an employment point of view this is a sector that is central to livelihoods, however precarious some of those jobs can be. It is a poor substitute for the missing social security programme.” [17]

Chandrasekhar further writes, “Within the supply chain itself, it is to be expected that the players displaced would consist of not only smaller retailers, stretching from kirana stores to street vendors, but also medium and large wholesale dealers who would be rendered irrelevant by the ability of large conglomerates to contract with and procure directly from producers. The immediate and direct effect would be a substantial loss of employment in the small and unorganised retail trade as well as in segments of the wholesale trade displaced by the big retail chains.” [18] This argument offers a back-handed compliment to the higher productivity in the supply chain logistics invested in by the international retailers. While modern economists see such gains in productivity as positives, Third world economists despise them. There is however, another point to be considered here. The technologies that lead to higher productivity in the supply chain will benefit those countries that supply those technologies. If Indian IT and manufacturing companies gain those benefits, it will be a positive for at least one sector of the Indian economy.

Ajay Labroo and Aparna A. Labroo describe how the retail chain Family Dollar withstood the onslaught of Walmart and could “fight back on several fronts to preserve its price leadership when a bigger rival with pricing advantages arising from economies of scale muscles in.” [19] This episode is very relevant for the traditional kirana stores in India. For long, India had supply shortages and rationing in essential commodities. Government ran ration shops and the bureaucrats treated shoppers with disdain and shopping experience has been negative. Shoppers’ experience even at private shops is not worth writing home about. Even today, the Indian shopper does not have a pleasant shopping experience. With competition and increased availability of goods, the customer service has to improve. The questions are: will the traditional Indian shop owners learn to be customer friendly; will they get the protection from the government; or will they fold and ask the government for compensation payment?

Referring to the scenario of allowing the “foreign supermarket giants into this nation of mom-n-pop shop-owners,” Chengappa writes, [20] “Their fears are well-known. The Indian retail sector comprises some 15 million small outlets employing nearly 40 million people. Organised retail, a recent phenomenon, currently accounts only for a small fraction – 8 per cent – of the $450 billion, and fast-growing, pie, and having largely failed to effect changes in the farm-to-fork supply chain, they have barely made a dent in that landscape.”

Citing a positive aspect of the entry of large retailers into the market, Chengappa suggests, "Moreover, they will set up world-class supply chains. Some 30-40 per cent of food that the farmer grows is wasted today, that will be eliminated. I have met farmers who are happy as they have taken on contract farming and supply mangoes and coconuts to large Indian retail chains at prices that are higher than what the mandi operators ever gave them.” [21] Another positive aspect, according to Chengappa, is “… the government estimates that the opening up will lead to the creation of a larger retail pie and to the creation of 10 million new jobs within the next three years.”

Chandrasekhar reported, “In predictable fashion, the Manmohan Singh government chose to ignore voices of opposition and implement its agenda of permitting foreign investment in the retail trade. While Parliament was in session, the Cabinet met to approve the hitherto prohibited foreign direct investment in multi-brand retail, with a cap of 51 per cent on foreign equity that ensures majority ownership. Simultaneously, the cap on foreign equity investment in single-brand retail has been enhanced to 100 per cent, offering sole ownership rights to foreign investors.” [22]

Referring to the destruction of jobs in urban retail sector, Professor Prabhat Patnaik stresses, “This argument however is dangerously violative of a humane discourse.” She continued, “For the introduction of FDI in retail to be at all a credible measure for consideration, it is essential therefore that it should be accompanied by a system of compensations for the losers, for example in the form of an Income Guarantee Scheme for the petty retailers. Even with such a system of compensations, FDI in retail can still be objected to on grounds of violating egalitarianism; but without such a system it is simply not worth considering at all. And if such a system of compensations is considered infeasible on administrative or any other grounds, then too it follows that FDI in retail is not worth considering at all.” [23]

The CPI(M) general secretary, Mr. Karat, told journalists that allowing FDI in retail would threaten the existence of retail stores and small traders as multinational corporations would form chains of outlets. The CPI (M) would conduct a nationwide movement to stop the retail chains if the government went ahead with its moves. [24]

The eagerness of Central Government ministers to get FDI into the retail sector and the stubbornness of the opposition are clearly evident from the sampling of their statements stated in the previous paragraphs. However, it is not clear if the respective pronouncements are the results of comprehensive and objective analyses or merely their gut feelings. At the same time, the reports from the writers in the media also lack a deeper study of the structure and composition of the retail industry in the developed countries.

Retail Industry in India

Indian retail sector can be summarized as shown Table below.

(Data from Sangeetha Chengappa’s news story cited at Footnote 15)

Size ($Billion)	Number of small retailers (Million)	Employment (Million)	Organized retail market out of total market (%)	Retail sector contribution to GDP (%)
$450	15	40	8	14

The following information is excerpted from the India Brand Equity Foundation (IBEF) website. [25]

India has one of the largest number of retail outlets in the world. The retail sector is experiencing exponential growth, with retail development taking place not just in major cities, but also in Tier-II and Tier-III cities. India's growing population and urbanisation provides a huge market for organised retail. Growing economic prosperity and transformation in consumption pattern drives retail demand.

India ranks fourth among the 30 countries that were surveyed in Global Retail Development Index and ranked sixth in the 2011 Global Apparel Index.

The BMI India Retail Report for the fourth quarter of 2011 forecasts that total retail sales will grow from US$ 411.28 billion in 2011 to US$ 804.06 billion by 2015. Robust economic growth, population growth, the increasing wealth of individuals and the speedy construction of organised retail infrastructure are key factors behind the forecast growth. As well as an expanding middle and upper class consumer base, there will also be opportunities in India's Tier-2 and Tier-3 cities. The greater availability of personal credit and a growing vehicle population providing improved mobility also contribute to a trend of 11.9 per cent annual retail sales growth. Tourism is also a major contributor to the Indian retail sector.

In its report titled, India: The last Retail Frontier, [26] PricewaterhouseCoopers (PwC) described that the opening up of India’s retail sector has been the hope of global retailers such as Carrefour, Walmart and Tesco for years. And grocery retailers are not the only ones with their eyes on the prize: luxury brands like Louis Vuitton and Burberry are anxious to grab a share of India’s increasingly prosperous middle class. According to “Winning in India’s retail sector,” a recent report issued by PwC, India’s large, aspirational middle class now constitutes 75 million households, or 300 million individuals.

A.T. Kearney the global management consultancy that publishes the annual Global Retail Development Index (GRDI), has recently issued a study on how retailers can tackle India’s US$435 billion market. A.T. Kearney’s analysis suggests that organized retailers should use a compact hypermarket concept to tap into India’s significant retail opportunity. Compact hypermarkets are just the right size. [27]

It should be realized that in India, the traditional retail industry actually coexisted with the producers as shown in Figure 1. Only the excess farm products go to a higher level for storage and urban markets.

Figure 1: Farmer/ Producers and Consumers Coexist in the Traditional Indian Retail Sector

Retail Industry in the US

Now, we turn to a brief overview of the retail industry in the US with the objective to present the scope and bounds of this industry. Since the US industry is well organized, it is easier to discuss what is included and what is not included when we talk of the retail industry. It is hoped that such a description presents a contrasting picture versus the agglomerated view one gets in the discussion of the retail industry in India.

For those who wish to get a global view, a good description of the global retail industry is presented in an article by Barbara Farfan. [28]

A study of the structure of the US retail industry may be undertaken by looking at the Census Bureau data and reports and the descriptions of the NAICS (North American Industry Classification System) codes.

NAICS 44 and 45 represent Retail Industry. [29] The Retail Trade sector comprises establishments engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise.

This sector comprises Motor Vehicle and Parts Dealers, Furniture and Home Furnishings Stores, Electronics and Appliance Stores, Building Material and Garden Equipment and Supplies Dealers, Food and Beverage Stores, Health and Personal Care Stores, Gasoline Stations, Clothing and Clothing Accessories Stores, Sporting Goods, Hobby, Book, and Music Stores, General Merchandise Stores, Miscellaneous Store Retailers, and Nonstore Retailers.

It is critical to realize that the retail sector is huge and comprises a whole spectrum of merchandisers. The other key point to note is that this industry operates “generally without transformation” of materials. These points are emphasized to draw the distinction with the statements of Indian leaders. The Indian leaders give the impression that the retail sector is solely focused on the food grains food products. They also suggest that the entry of foreign retailers would prevent food product losses through better storage methods, while retailers deal with storage only to the extent of their logistics. In the US, Storage operations are classified under NAICS Sectors 48-49 -Transportation and Warehousing of goods (described a couple of paragraphs later).

NAICS 445 comprises Food and Beverage Stores. Industries in the Food and Beverage Stores subsector usually retail food and beverages merchandise from fixed point-of-sale locations. Establishments in this subsector have special equipment (e.g., freezers, refrigerated display cases, refrigerators) for displaying food and beverage goods. They have staff trained in the processing of food products to guarantee the proper storage and sanitary conditions required by regulatory authority. [30] This applies only during wholesale and retail logistics.

We may also note that NAICS 42 is wholesale trade. The Wholesale Trade sector comprises establishments engaged in wholesaling merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The merchandise described in this sector includes the outputs of agriculture, mining, manufacturing, and certain information industries, such as publishing. The wholesaling process is an intermediate step in the distribution of merchandise. Wholesalers are organized to sell or arrange the purchase or sale of (a) goods for resale (i.e., goods sold to other wholesalers or retailers), (b) capital or durable nonconsumer goods, and (c) raw and intermediate materials and supplies used in production. [31]

In the discussions of the retail industry in India, cold storage and refrigeration of fresh farm products are included. Hence, it may be relevant to discuss these subsectors here. Transportation and Warehousing of goods is classified under NAICS Sectors 48-49--Transportation and Warehousing and not under NAICS Sectors 44-45 Retail. The Transportation and Warehousing sector includes industries providing transportation of passengers and cargo, warehousing and storage for goods, scenic and sightseeing transportation, and support activities related to modes of transportation.

Establishments in these industries use transportation equipment or transportation related facilities as a productive asset. The type of equipment depends on the mode of transportation. The modes of transportation are air, rail, water, road, and pipeline. [32]
NAICS 493 represents Warehousing and Storage. Industries in the Warehousing and Storage subsector are primarily engaged in operating warehousing and storage facilities for general merchandise, refrigerated goods, and other warehouse products. These establishments provide facilities to store goods. They do not sell the goods they handle. These establishments take responsibility for storing the goods and keeping them secure. They may also provide a range of services, often referred to as logistics services related to the distribution of goods. Logistics services can include labeling, breaking bulk, inventory control and management, light assembly, order entry and fulfillment, packaging, pick and pack, price marking and ticketing, and transportation arrangement. However, establishments in this industry group always provide warehousing or storage services in addition to any logistic services. Furthermore, the warehousing or storage of goods must be more than incidental to the performance of services, such as price marking. [33]

In the case of fresh food storage, NAICS 493120 Refrigerated Warehousing and Storage plays a critical role. This industry comprises establishments primarily engaged in operating refrigerated warehousing and storage facilities. Establishments primarily engaged in the storage of furs for the trade are included in this industry. The services provided by these establishments include blast freezing, tempering, and modified atmosphere storage services. [34]
We may also note here that Agriculture, Forestry, Fishing and Hunting, [35] and Manufacturing [36] produce the goods that wholesale (NAICS 42) and retail (NAICS 44-45) sales sectors, referred to earlier, deal with. The retailing process is the final step in the distribution of merchandise; retailers are, therefore, organized to sell merchandise in small quantities to the general public.

A schematic representation of the position of retail sector in the supply and customer chain is shown in Figure 2. Position of the retail sector in the US is farther from the producers and closer to the consumers owing to the large urban population and concentrated manufacturing centers.

Figure 2: Position of the Retail sector in the US is farther from the producers owing to the large urban population and concentrated manufacturing centers.

Status of the Retail Industry

The US retail industry includes about 1 million outlets with combined annual revenue of about $4 trillion. Major companies in this sector include Wal-Mart, Home Depot, Kroger, Costco, and Target. While large companies dominate some retail sectors (such as mass merchandisers and grocery stores), other sectors (such as auto dealers and convenience stores) are fragmented. Many specialty retailers are single-store operations. [37]

According to the latest annual report from the U.S. Census Bureau (calendar year 2009), the total amount of sales for the U.S. Retail Industry (including food service and automotive) was $4.13 trillion. Measured solely by revenue numbers, the U.S. is the undisputed leader of the retail industry. Wal-Mart is not only the largest global retailer, it is also one of the largest companies of any kind in the world. According to Fortune Magazine's 2010 "Global 2000" list, 54 of the largest companies of any type in the world are U.S. based companies with that are solely retail companies or companies with significant retail operations. [38] A complete list of publicly traded multi-store retail chains in the U.S. is available on the website about.com.retailIndustry. [39] A list of US retail industry companies that are included on 2011 "Fortune 500" list is at reference. [40]

Of the world’s 10 largest retail companies in the world, five of them are from the US and five are from Europe. These top ten global retailers had combined sales of $1.15 trillion in 2009, according to international consulting group, Deloitte. [41]

Of the world’s top ten retail companies in terms of total sales, six are American. Combined sales of the top ten companies, computed by Deloitte, were $978.5 billion in 2007. Major retail giants include Wal-Mart, Target, Home Depot and Tesco. [42]

Walmart operates various formats of discount department stores under 53 different banners worldwide, including Walmart, Sam’s Club, & Asda, and is the largest retailer in the world. As of Apr 30, 2012 the company operated 10,231 total stores including 3,886 Walmart stores in the U.S., with 3,049 Supercenters, 621 Discount Stores, 196 Neighborhood Markets (includes Amigo and Supermercado banners) and 14 Small Formats (includes Marketside, Walmart Express, Walmart on Campus and Super Ahorros banners), 612 Sam’s Club warehouses in the U.S., and 5.733 locations across 26 countries Internationally. [43]

Wal-Mart has net sales of $419 million in 2011 with 62% of sales coming from Wal-Mart US. Its primary NAICS code is 452910 [44] – Warehouse Clubs and Supercenters. Walmart, Kmart and Target are assigned NAICS code 452990, [45] (by Mergent, [46] a detailed business directory, that classifies large companies into one of the NAICS codes) which is the code for General Merchandise Stores. When a firm is engaged in many different types of activities, Mergent assigns the code based on its biggest source of revenue. [47]

It may be noted for comparison that Wholesale trade has a NAICS Code of 42 and has 432,094 establishments, and generated sales of $6 trillion; while retail Trade has NAICS Codes of 44-45, has 1,122,703 establishments, and generated $3.9 trillion (in 2007). [48]

Suzanne Kapner, [49] writes, “Craig Johnson, president of the consulting firm Customer Growth Partners, estimates that since January [2012], Wal-Mart's share of the $3 trillion U.S. retail market has edged up to 11.3%, compared with 10.5% during the same period a year earlier. According to Kapner, by comparison, Target's market share, over the same period, edged up to 2.3% from 2.2%.

Expectations Mismatch

The above description and analysis demonstrates the lack of congruency between the Indian expectations for its farm sector and food security [50] and the mission, role, and performance of the retail sector (as seen in the US). Since the retail sector takes off where the wholesale sector leaves, and it plays, at most, a very limited role in the manufacturing, and farm sectors, this sector will have minimal direct effect on the fulfillment of the hopes of Indian leaders.

It may be observed that many other giants play significant roles in the agricultural and food processing sectors. Here is a brief sampling of them.

The manufacturing sector [51] NAICS 31 comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. NAICS 311, Food Manufacturing [52] subsector deals with industries that transform livestock and agricultural products into products for intermediate or final consumption. The industry groups are distinguished by the raw materials (generally of animal or vegetable origin) processed into food products. The food products manufactured in these establishments are typically sold to wholesalers or retailers for distribution to consumers, but establishments primarily engaged in retailing bakery and candy products made on the premises not for immediate consumption are included. Establishments primarily engaged in manufacturing beverages are classified in Subsector 312, Beverage and Tobacco Product Manufacturing.

The top ten companies in the list of the top 100 food processing companies (2011) are Pepsico [53], Nestle [54], Kraft Foods [55], Tyson Foods [56], Anheuser Bush [57], JBS USA [58], General Mills [59], Dean Foods [60], Mars [61], Smithfield Foods [62]. [63] It is noteworthy that the leading retailers are not among the Food Processors.

A couple of companies are mentioned as they work close to the farms and farmers.
At Archer Daniels Midland Company (ADM), 30,000 people work to connect the harvest to the home, turning crops into renewable products that serve the vital needs of a growing world. The company trades, transports, stores, and processes corn, oilseeds, wheat and cocoa into products for food, animal feed, industrial and energy uses at over 265 processing plants and more than 330 sourcing facilities. [64] Headquartered in Decatur, Illinois, ADM connects crops and markets in more than 75 countries on six continents. Net sales for the fiscal year ended June 30, 2011, were $81 billion. [65] ADM’s main NAICS Code is 311223. [66] [67]

Cargill, the agribusiness giant, the largest private corporation in the US, has operations in about 70 countries. It has five business units -- Agriculture Services (customized farm services and products); Food Ingredients and Applications (food and beverage ingredients, and meat and poultry products); Industrial, Origination and Processing (commodity origination, processing, marketing and distribution); Risk Management and Financial (risk management and financial solutions); and Industrial (salt, steel, and fertilizer). Cargill's customers include food, beverage, industrial, pharmaceutical, and personal care product makers, as well as farmers and food service providers. [68]

Indian leaders and people are very likely to be deeply disappointed if they expect that FDI in retail would by itself improve the farming sector. They should take a comprehensive look at the roles played by the various companies and develop an overall strategy to orchestrate a highly productive, and efficient end to end chain.

Realistic outlook

Since the retail sector and the wholesale sector constitute the main link between the farmer and manufacturer on the one hand and the consumer on the other, the companies in these sectors can play a significant role by expanding their mission and roles into facets of the farming and manufacturing sectors.

Unlike in the US, farms are small and farmers are unable to make significant investments in long term improvements and short term resource inputs to gain sustained returns.

By making long term commitments to buy products from small farms, retailers could assist the farmers to invest in technology and management methods to improve their productivity efficiency. Farmers can use such agreements to get loans from banks and other lenders.

By providing national and international trends in crop choices, farmers can be helped to raise appropriate crops to meet anticipated demands rather than create glut in products.

By linking the local producers with nearby markets and consumers, transportation logistics can be simplified and attendant costs can be reduced.

There is unfortunately, an unneeded and preferential categorization of foods as high class and low class in India. By populating educational information and knowledge, the so called low status foods can be popularized based on their nutritional value and price.

By encouraging food processing on the farm and in rural communities, the cost of processed food can become a value added activity for rural communities. Usable rejects can be utilized for appropriate processes. [69] The processing waste or byproducts can be returned as animal feed or farm manure while reducing transportation costs, and urban waste.

By encouraging and actively instituting product quality and quantity standards, small farm producers can be encouraged to ship their products directly to urban consumers (homes, hotels, restaurants, and poor feeding kitchens).

By negotiating with providers of transportation such as the railways, road transport corporations, prepackaged products can be shipped by farmers to urban homes.

Since the global retailers have better market intelligence, they can encourage the production of certain products to meet demands across the continents, and benefit both farmers and consumers.

The difference between the position (center of gravity) of the retail sector in India and the US is schematically illustrated in Figures 1 and 2 respectively. Essentially, the producers of farm products and consumers are widely distributed as the population is more rural (70%) than urban. This difference should be considered when designing the food gran storage and the location of retail shops to cater to the majority of Indians.

Conclusions and Recommendations

The discussion presented in this paper attempts to show that the various news reports have not contributed to clarity of the situation but only obfuscated. Government claims that FDI will create jobs while the critics claim to the contrary. Clear commitments by foreign retailers to invest in the agricultural sector and the food processing and preservation infrastructure beyond what is in transit to the stores have not been seen.

It is only a hope that an organized retail sector will perform better as its record of customer service in the West was better. It is also a hope that competition will force the unorganized retail sector in India to clean up their act, innovate, and do better (as seen in the example of Family Dollar).

It is intuitive that certain jobs will be lost and others will be gained if FDI in retail is allowed and it leads to higher productivity and efficiency of the sector. But only a detailed and objective analysis would show the areas of job gains and job losses. But when viewed in the context of gains in stemming the losses and spoilage of food, certain net job losses may be tolerated. Productivity gains are always welcome provided the society can devise new productive jobs for the displaced.

It is also possible that organized sector pays better salaries and taxes than the unorganized sector and that may be a net gain to the workers.

With the money power, will the retailers help in the logistics chain and storage (preventing rot and waste) or will they manipulate the market? Statements of some foreign retailers appear to suggest that they have and that they would assist the farmers with funds (e.g. through long term purchase commitments) to improve their agricultural processes and product quality and quantities. If this is a commitment, it is a welcome development.

With increased competition, consumers can be assured of reliable supplies at affordable prices provided no single chain monopolizes the market. This aspect depends on the principles and values the new retailers bring to the Indian market place.

The experience of the Western retailing scene actually provides some assurance. For example, Wal-Mart has only 10,231 stores relative to about one million retail outlets in the US. Wal-Mart operates large stores in major cities. Shoppers with automobiles go to these “big box” stores and buy their requirements. With high gas (petrol) prices, people are not likely to go long distances to buy their routine needs; they will go to the “corner stores” and buy their daily or weekly needs. In that sense, the future will have room for the many small stores as well as the few big stores. The effect of online stores with home deliveries is yet another unknown in the scheme of things.

Although the Nineteen Fifties India was apprehensive of the computer technologies, the Nineteen Nineties India embraced Information Technology and benefitted immensely from it. Similar has been its experience with modern manufacturing and communication technology. Let us hope that India will embrace the modern retail technology with international partners and thrive.

-o-

[1] The author lives in Potomac, MD, USA, and can be reached at somkdsr@verizon.net

[2] http://en.wikipedia.org/wiki/Economy_of_India

[3] FDI in retail to create 10 m jobs: Sharma; http://www.deccanherald.com/content/207255/fdi-retail-create-10-m.html

[4] http://www.thehindu.com/news/national/article2837841.ece

[5] http://economictimes.indiatimes.com/news/news-by-industry/services/retailing/450-billion-retail-sector-foreign-investment-plan-moving-very-fast/articleshow/10156741.cms The hyperlinks are removed and the footnotes are added by the current author.

[6] http://www.walmart.com/

[7] http://www.carrefour.com/

[8] http://www.tescoplc.com/

[9] http://www.metrogroup.de/internet/site/metrogroup/node/METROGROUP_INTERNET_HOME/Lde/index.html

[10] http://articles.economictimes.indiatimes.com/2011-09-28/news/30212912_1_multi-brand-cent-overseas-investment-single-brand

[11] http://www.walmartstores.com/AboutUs/9773.aspx

[12] http://economictimes.indiatimes.com/news/news-by-industry/services/retailing/our-investment-in-india-retail-sector-will-grow-if-fdi-rules-relaxed-walmart/articleshow/10156825.cms

[13] The sub-sectors in which Wal-Mart plays prominent roles in their US operations are described in a later section of this paper.

[14] November 30, 2011, The retail counter-revolution, C. P. Chandrasekhar, http://www.thehindu.com/opinion/columns/Chandrasekhar/article2672067.ece

[15] FDI in retail: Walmart at the gates, December 4, 2011, By Sangeetha Chengappa, http://www.deccanchronicle.com/360-degree/fdi-retail-walmart-gates-179

[16] Same as footnote 14

[17] Same as 14

[18] Same as 14

[19] http://www.ft.com/intl/cms/s/0/2f67c12c-4e95-11e1-8670-00144feabdc0.html#axzz1lhWdqyY1

[20] Same as 15

[21] Same as 15

[22] Same as 14

[23] Prabhat Patnaik, “Legitimising an inhumane discourse, “The Hindu, December 27, 2011,

http://www.thehindu.com/opinion/lead/article2750054.ece?homepage=true

[24] http://www.thehindu.com/news/national/article2793171.ece?homepage=true

[25] http://www.ibef.org/industry/retail.aspx

[26] http://www.pwc.com/en_GX/gx/retail-consumer/assets/rc-worlds-express-india-the-last-retail-frontier.pdf

[27] http://www.atkearney.ae/index.php/News/can-hypermarkets-conquer-india.html

[28] http://retailindustry.about.com/od/statisticsresearch/p/retailindustry.htm

[29] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart_code=44&search=2007 NAICS Search

[30] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=445&search=2007 NAICS Search

[31] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=42&search=2007 NAICS Search

[32] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=48&search=2007 NAICS Search

[33] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=493&search=2007 NAICS Search

[34] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=493120&search=2007 NAICS Search

[35] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=11&search=2007 NAICS Search

[36] http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=31&search=2007 NAICS Search

[37] http://www.hoovers.com/industry/retail-sector/1518-1.html

[38] http://retailindustry.about.com/od/statisticsresearch/p/retailindustry.htm

[39] http://retailindustry.about.com/od/topusretailcompanies/a/pulicretailstorelist_3.htm

[40] http://retailindustry.about.com/od/topusretailcompanies/a/2011-Retail-Fortune-500-Rankings-2008-2009-2010-Comparisons.htm

[41] http://retailindustry.about.com/od/statisticsresearch/p/retailindustry.htm

[42] http://www.economywatch.com/world-industries/retail-industry.html

[43] http://retailsails.com/monthly-sales-summary/wmt/

[44] NAICS 452910: This industry comprises establishments known as warehouse clubs, superstores or supercenters primarily engaged in retailing a general line of groceries in combination with general lines of new merchandise, such as apparel, furniture, and appliances.