Wal-Mart assaults India
Posted by parisar on August 30, 2007
27 August 2007. A World to Win News Service. The US-headquartered retailing giant Wal-Mart signed an unprecedented agreement with an Indian partner to begin operations in that country 6 August. The move heralds big changes in agricultural and industrial production as well as distribution. It will accelerate the economic and social changes sweeping India as imperialist monopoly capital and domestic monopoly capital enter into new alliances and configurations. The UK supermarket chain Tesco, France’s Carrefour and Auchan, and Germany’s Metro are all eyeing India. The Wall-Mart Bharti chain, the first of its kind in India, is expected to open next year
The following slightly abridged article entitled “The Wholesale of Retail” by George Joseph, was published in the July 2007 issue of the Indian Maoist magazine The New Wave.
Finally, the international monster retailer from the US – Wal-Mart – is entering the Indian retail sector, though not through the front door. Wal-Mart has made a tie up with Bharti Enterprises and launched Bharti Retail in order to enter into the foray of retail business in the country. As the United Progressive Alliance (UPA) government has not yet formally given the nod for the entry of Foreign Direct Investment (FDI) in retail, Wal-Mart took the option of a back door entry. In February, Bharti Enterprises formally unveiled its road map for its retail business in India. With a plan to open its first retail outlet by 15 August 2008 (Indian independence day – how patriotic they are!), it is investing around US$2.5 exclusively for front-end stores in the retail business. This is with an aim of making revenue of $4.5 billion out of this business by 2015! They are planning to set up a number of hypermarkets and supermarkets across the country. It is said that in the beginning Bharti Retail would manage the front-end and Wal-Mart would be involved in the back-end that is, the procurement, logistics and supply chain. The plan behind this tie up is very clear. When the government opens up the retail sector for FDI, Wal-Mart can very easily come to the front-end of the retail business and become the monopoly. By that time it would be able to spread its retail chain across the country through Bharti Retail. Ever since Prime Minister Manmohan Singh announced in 2004 that, his government was considering to permit FDI in the retail sector and following him, Finance Minister P. Chidambaram made another statement along the same lines while making the mid year review for 2004-05, it became one of the hottest topics of debate – whether FDI should be allowed in retail sector or not? But it is interesting to note what Finance Minister said then. He said, “On retail, the review notes that creating an effective supply chain from the producer to the consumer is critical for development of many sectors, particularly processed and semi-processed agro-products. In this context, it says, the role that could be played by organised retail chains, including international ones merits careful attention”. So it is not only about FDI, he also spoke about permitting “organised retail chains” in the retail sector. These “organised retail chains” are none other than big corporates like Bharti, Reliance Tata, the Birla Group, Godrej, the Mahindra, the ITC Group and Wadia – and a horde of others – who are awaiting the opening up of the retail sector to pump in enormous amounts of investment money over the next few years. According to Chidambaram, the entire retail sector is going to be opened up for the Indian compradors as well as FDI. As far as the ordinary people engaged in the retail business are concerned there is no difference between FDI and Indian Corporates once they are in retail. The tendency of both will be to oust the traditional retailers, monopolise and then control the sector. For the time being, just because of wide criticisms from various corners and opposition from the fake left, the government has withheld the plan to open up the retail sector for FDI, whereas, the Indian corporates are already given a free hand. Here, the government and the organised retail lobby were quite successful in containing and diverting the whole debate in the direction of FDI question in retail sector, so that the entry of Indian corporates in retail is justified and supported. This is evident from the general opinion coming out from various corners that “when there is enough capital here itself then why should we allow foreign capital in the retail sector?” This kind of argument fails to understand the dangers of this so-called capital of the corporates. It is the very same capital that has massacred adivasis (formerly known as “untouchablels”) at Kalinganagar, or is snatching away the basic livelihood of hundreds of thousands of people across the country in the name of the Special Economic Zones (SEZ). It is the very same capital that makes huge profit out while employing very few people and helps the governments to show multi-digit GDP growth while pushing millions into hunger and misery. And, it is this very same capital that is now going to snatch away the livelihood of the more than 160 million people whose life depends on the retail sector. Meanwhile, with an aim to substantiate the need to open up the retail sector for FDI, various study reports were brought out by the government as well as corporates. The study conducted by the Indian Council for Research on International Economic Relations (ICRIER) came out with its report on FDI in retail sector, strongly recommending for 49 percent FDI. It says, “In the initial stage, FDI up to 49 per cent should be allowed which can be raised to 100 per cent in 3-to-5 years depending on the growth of the sector. FDI cap below 49 per cent would not bring in the desired foreign investment”. It argued that by restricting FDI, we are losing huge amounts of foreign investment which otherwise would have speeded up the growth of organised formats in the country. During the same time, towing a similar line of thinking as that of ICRIER report, another report by the ICICI bank also came out. In all these reports the basic arguments in support of allowing FDI in retail are that it will improve competition and develop the market; will generate more employment; increased sourcing by major international retailers will boost up exports; greater investment in food processing technology will reduce overall wastage and improve production and distribution cycle; will improve the life style by spending on quality products; and, in the long run it will develop tourism, improve agriculture, develop efficient small and medium size industries etc… etc…! …..And, finally they make a comparison of the benefit China gained from FDI in retail. All the major international retail giants like Wal-Mart, Tesco, Carrefour, Auchan, Royal Ahold and 7-Eleven, who are consistently pressurising their respective governments to demand that the World Trade Organization open up the retail sector for FDI, are here at our door steps to grab the first opportunity when FDI is allowed. Among them, Wal-Mart was very smart in manipulating the situation in their favour. The president and CEO of Wal-Mart International, John B. Menzer, met the Prime Minister in May 2005, to discuss about the opening up of the retail sector in this country for FDI. Business World had reported that, “The world’s largest company, Wal-Mart, is leaving no stones unturned to lobby for its entry into India.” That was true. To prepare the ground for Menzer’s visit, according to a media report, David Mulford, US ambassador to India, met the prime minister, finance minister and commerce minister. Thus, even before the Wal-Mart president’s arrival, the government had publicised their intent to liberalise the retail sector for FDI. During that visit, the Wal-Mart chief remarked that they are “ideally” interested to come with full equity in every category including food and grocery. That means they want to sell everything what we purchase at present from the local grocery shop or the street vendor or from the branded shops, under one roof, that of Wal-Mart! What is so fascinating about the retail sector here? It is nothing but the huge market potential that exists in it as far as size and revenue are concerned. According to the Global Retail Development Index (GRDI) Report of the international management consultancy firm AT Kearney, India is the second most potential destination for retail in the world after Russia, and its retail market is poised to double in 2005. According to another report estimated by FICCI, the total retail business to be around $286 billion(1) or 44% of the GDP, and food sales account for 63% of the total retail sales. A latest report, India Retail Sector Analysis (2006-2007) by the market consultancy firm RNCOS, predicts the growth of the retail sector to $427 billion by 2010 and $637 billion by 2015.(2) This shows that trade or retailing is and will be the single largest component of the services sector in terms of contribution to the GDP. It is this potential that big capital is eyeing. The retail sector in India is highly fragmented. Of the total trade taking place, 98% is in the unorganised retail sector which includes all low-cost retailing, for example, the local grocery shops, owner manned general stores, small beedi (poor people’s cigarette) shops, hand carts and pavement vendors. Only 2% is estimated to be in the organised sector, which includes hypermarkets, supermarkets, margin-free shops and privately owned large retail businesses, whereas in developed economies, organised trade makes up over 70-80% of total trade. Actually this is one of the concerns among ruling class policy makers who have already set out to make India a so-called “developed country”. (Akin to “kill the poor to kill poverty” logic!) According to RNCOS report, organised retail will form 10% of total retailing by 2010. As of today, India has the highest shop density in the world. It was estimated in 2001 that there were 12 million retail outlets in the country. That is 12 outlets for every 1,000 people. Perhaps India may be the only country in the world to have more than one retailer for every hundred people! Only 4% of them are larger than 500 square feet in size. Compare this with the average size of a Wal-Mart store, 85,000 sq. ft! According to the report, the total retail market is primarily focused in rural regions, which makes up 55 per cent (equivalent to $165 billion) of the overall retail market as opposed to the urban segment, which represents 45 per cent (equivalent to $135 billion). The rural market is spread over 627,000 villages, of which a core group of 100,000 villages that makes up 50 per cent of the rural populace will be the main target at present. This is the market potential even in rural areas the corporates are targeting. All these studies and reports, which give primacy to capital, carefully avoid any reference to the plight of the people involved in the retail business and their fate when huge capital enters. It is estimated that there are approximately 40 million people involved in the unorganized retail sector. Where as the organized trade employs merely 500,000 people! That is 4% of India’s population is in the unorganized retail business. If we assume an average dependency of four persons per retailer, then there are 160 million people living on small-scale retail businesses in the country. Approximately 20 million are employed in this sector, mostly on day wages. The total comes to nearly 20% of the population. Though retailing is termed self-employment, it is actually a form of disguised unemployment. The vastness of the unorganized retail sector is a visible testimony to the unemployment situation in the country. Very few people opt for a retail job of any sort, depending on the meagre capital available, except when all other options of employment are closed. Those who seek employment also see it as a last resort. The government boasts about two-digit growth in industry but this is nothing but jobless growth and it is continuing for many years. So it is not choice but circumstances that make up a retailer. For the vast majority, their capital may be of few hundreds or at the most a few thousands in contrast to the millions and billions of the “Indian”/ foreign big retailers. There is no way they can stand up to these big players of capital and compete with them. Whether Indian comprador capital or foreign capital, its logic will be to monopolise the market. In such a situation the UPA government’s plan to open up the retail sector means forcefully disappearing more than160 million people for some 16-odd big players! This is must be stopped. Wal-Mart is already here. A number of other international retailers are waiting to enter. It is true that there will be huge capital investment. But who is going to benefit? Many reports have already come out exposing their skewed method of profit making and their anti-labour policies. The modus operandi of these companies is to source items at the lowest price and sell it at a very higher price, but one lower than what is current in the market. Wal-Mart chief Mr Menzer gave a fine demonstration of this at a lunch hosted for journalists at the US embassy in Delhi. Waving his little black wallet at everyone he said: “We sell this piece, sourced from India, at $17 a piece in the US. Our competitor sells it for $70.” But he didn’t tell the price he sourced it. In all probability he must have procured it from here for not more than $3 or $4! In this effort to source items at a very low price they put undue pressure on the actual producers or suppliers for low cost production. Suppliers are forced to cut down wages and other benefits to labourers, ignore health and safety regulations, increase maximum working hours and restrict labour rights in order to reduce production costs and keep their contract going. This is the case with almost every production unit in China supplying goods to Wal-Mart. In effect they are working as “sweat-shops” of Wal-Mart. Actually, the Chinese government is consciously allowing hundreds of thousands of wage labourers to toil in such sweat-shops for the sake of FDI. Led by a sham Communist Party it has become perhaps the world’s greatest facilitator of capitalist production.(3) A lot of reports are already available on this topic. A report on ASDA Wal-Mart, a wholly owned UK subsidiary of Wal-Mart since 1999, says, “Wal-Mart’s relentless pursuit of the lowest possible prices has taken a heavy toll on its employees and suppliers. Workers in Wal-Mart stores and distribution centres have seen their rights violated as a result of cost cutting, while the company’s determined opposition to trade unions has denied employees essential protection and bargaining rights. Suppliers have been exposed to ever worsening conditions as Wal-Mart turns the screw on source factories in some of the poorest countries in the world”.(4 )But, the self-styled champions of “GDP-based growth” who tirelessly argue for FDI and comprador capital in retail sector conveniently hide these facts from their open discussions. On the contrary, what they say is, “see Wal-Mart, has 45 stores in China and procures merchandise worth $20 billion from there, whereas in India, it has just one procurement office in Bangalore and outsources for only $1 billion worth of merchandise”. In its investigation of factory conditions, the US National Labor Committee found that “in country after country, factories that produce for Wal-Mart are the worst.” According to the Committee, Wal-Mart “is actually lowering standards in China, slashing wages and benefits, imposing long mandatory-overtime shifts, while tolerating the arbitrary firing of workers who even dare to discuss factory conditions.”(5) This can be substantiated from what is explained by a Chinese labour official: “Wal-Mart pressures the factory to cut its price, and the factory responds with longer hours or lower pay… and the workers have no options.”(6) More than 30 million Chinese workers have lost their jobs as the old state-owned industrial base crumbled before the competitive onslaught of foreign and domestic private firms.(7) The stories at the front-end of its operation are of closure and monopoly. In US itself, Wal-Mart’s existence has led to large-scale closures. A survey of Wal-Mart’s impact in the first 12 years of its operation in the US state of Iowa found that 50% of clothing stores, 42% of variety stores, 26% of department stores and 30% of hardware stores had closed.(8) Wal-Mart can dump a wide variety of products sourced from cheap destinations, which will eventually affect local production units as there won’t be local takers once closure takes place. In the name of supplying quality food at cheapest price it can dump genetically modified food items in the market, bypassing public knowledge and the government. It can import cheap agro products from developed countries where the farm subsidy is heavy and sell them at very cheap prices here. This will have a direct bearing on the agrarian sector, which is already in distress. It can force the government to change many laws, including labour laws, to suit its free operation. In other words, to use US war language, we can say that the “collateral damage” Wal-Mart will cause is tremendous. 1. Foreign Direct Investment in Retail, ICICI Bank, 2004 2. RNCOS, India Retail Sector Analysis (2006-2007), April 2007 3. Peter S. Goodman and Philip P. Pan, “Chinese Workers Pay for Wal-Mart’s Low Prices”, Washington Post, 8/2/2004 4. ASDA Wal-Mart: The Alternative Report, September 2005, http://www.waronwant.org 5. Ibid. 6. Cited in Peter S. Goodman and Philip P. Pan, “Chinese Workers Pay for Wal-Mart’s Low Prices”, Washington Post, 8 February 2004. 7. Carl Goldstein, “Wal-Mart in China”, New York Times, 8 December 2003. 8. Cited in the ASDA report, “Bill Quinn, How Wal-Mart is Destroying America (and the World) and What You Can Do About It (Berkeley: Ten Speed Press), 2000, p. 4.