The Left objects, and domestic retailers are anguished
After years of trying to crack the $300 billion Indian retail market, Wal-Mart has received permission from the government of Prime Minister Singh to form an alliance with one of the country's largest telecommunications consortiums and launch stores to serve India's 1.1 billion people.
The deal between Wal-Mart and the consortium, the Bharti Group, has been cleverly structured to get around the government's continuing ban on foreign companies operating independent retail stores. Under the deal, Bharti will run the "front end" of the new stores, while Wal-Mart will provide consumer goods. The first store under the deal is scheduled to open in mid 2007.
The deal already raised the hackles of India's two Communist parties, whose support in the national parliament is needed by Prime Minister Singh's ruling 14-party coalition to stay in power. The Communists do not formally belong to the coalition, but they have the power to topple the government by withholding support from critical legislation.
The Communists and other minor Leftist parties argue that by allowing Wal-Mart into India, the prime minister is opening the floodgates through which American entrepreneurs will eventually seize control of the country $800 billion economy. India's annual economic growth rate is nearly 9%, and its economy is already the world's fifth biggest – after America, Japan, China and the European Union. According to World Bank estimates, India will be behind only America and China within a decade.
But such growth would be predicated on continued foreign direct investment (FDI), currently $12 billion annually – compared to $60 billion that neighboring China receives. India's minister of commerce and industry, Kamal Nath, told The New York Sun last night from Geneva that he expects FDI to double within the next two or three years.
Mr. Nath, India's chief salesman, has been urging foreign companies to invest in India, particularly in strengthening its infrastructure and in manufacturing facilities in the underdeveloped rural regions of a country that is half the physical size of the continental United States.
Its growing middle class – which Mr. Nath claims is nearly 250 million – is second only to that of America. This middle class represents an enormous market for retailers who heretofore have been mostly small-scale entrepreneurs or mom-and-pop-type shops. Bloomberg News says that India ranks as the world's most attractive destination in consulting firm A.T. Kearney Inc.'s Retail Development Index.
To tap into India's markets, a number of large foreign retailers have been competing with one another. They include Retail French giant Carrefour, Hongkong-based AS Watson and UK-based Tesco. Home Depot of the U.S., Ikea of Scandinavia, and others are also aiming for India.
But in addition to running up against government regulations prohibiting a foreign presence in the retail industry, these companies have met with resistance from domestic heavyweights such as Reliance, Tata and the Aditya Birla Group. The Reliance Group's chairman, Mukesh Ambani, recently announced a $5.6 billion program to create "hypermarkets" around India.
He and other industrialists have formidable political clout, not the least on account of their financial contributions to political groupings such as the Congress Party, which leads the ruling coalition. The Congress president, Sonya Gandhi, last night summoned Minister Nath to return to New Delhi to deal with the escalating controversy over the Wal-Mart-Bharti deal. Mr. Nath has been in Geneva in his capacity as the leader of developing nations in their current negotiations of the Doha Round at the World Trade Organization. Ironically, one of the objectives of the Doha Round is to open up markets in rich and emerging countries alike.