Indian Retail: Mom & Pop 1, Wal-Mart 0

It's somewhat unimaginable for those in Britain for the corner store to politically outmaneuver the likes of mighty retailing giant Tesco, or for those in America to have the Kwik-E-Mart outfox the likes of massive Wal-Mart. Well, in India at least, it seems the little guys have outdone the international retailers at the lobbying game. For, the government has just shelved plans to allow stores to stock more variegated "multibrand" fare that would have paved the way for international retailers alike Tesco, Wal-Mart and Carrefour to begin plying their trade on a larger scale in India.

Alike in many other Asian countries, the Indian retail scene is highly fragmented with a multitude of small retailers or the archetypal mom-and-pop shops. Selection is limited by national laws discouraging "multibrand" retailers or your conventional supermarket fare. Aside from the inconvenience of multi-stop shopping, prices are also higher for obvious reasons:

The enormity of the Indian retail market has dazzled major corporations: Consulting firm A.T. Kearney, which has been polling companies about global-expansion aspirations for more than a dozen years, said India now ranks only below China on their priority lists, ahead of markets like Brazil and the U.S.

But public opposition to the move in India remains rife. Radha Krishna Store in Bengali Market in central Delhi is typical of the mom-and-pop stores the Indian government wants to protect from big-box retailers like Wal-Mart. The small store's shelves are stacked with items as diverse as shampoos, cooking oils, diapers and milk. Kamlesh Gupta and her husband have been operating the store for 25 years.

If chains like Wal-Mart and Tesco are permitted to operate in India, "everything will be over," Mrs. Gupta said. "If they sell goods cheaper than us, who will come here? Already, we have lost 20% of our business since Big Bazaar and Reliance [local chains] started operating in the last two years," she said, referring to two Indian retailers.

To protect stores like these, Uma Bharti, a leader of the main opposition party, the right-of-center Bharatiya Janata Party, had threatened that she would personally set fire to any Wal-Mart stores if they were allowed to enter India. She said she was prepared to go to prison for it. This party's voting constituency includes small retailers.

The political opposition to loosening the foreign-investment rules ensures that, for now, Wal-Mart's only way to grab a piece of the lucrative market is through a partnership with Bharti Enterprises Ltd. to operate wholesale-style "cash and carry" shops selling bulk items to small-business owners. The joint venture only had nine stores as of the end of October, a minuscule presence for a retail giant with more than 9,000 shops in 28 countries.

Forcing supermarket chains to break up their advantages--economies of scale--to deal with mom-and-pop shops sort of defeats the entire purpose of having them around. I guess their belief is that gaining a foothold is better than having none at all. It's also scary to think that a politician of one of India's main political parties threatens to burn Wal-Mart superstores if they're ever put up. Talk about militancy.

What are the chances for retail liberalization now?

The Indian government's decision to put the proposal for multibrand retailers on ice came also as a blow to Tesco, which along with other British businesses has advocated changing the regulations. Tesco has been unable to open stand-alone retail stores in India and instead operates through a franchise deal with Tata Group unit Trent. "The decision to defer [foreign direct investment] is a missed opportunity for Indian producers, farmers and consumers," Tesco said.

Saloni Nangia, senior vice president and head of retail and consumer goods at Technopak, a consulting firm based in New Delhi, is hopeful that the decision to allow foreign retailers to open supermarkets in India might still happen.

One hopes it will eventually happen for the consumer's benefit, but you never know. Lest you think it's an open-and-shut case of Western imperialism at work here, remember that Indian farmers also lose out from this situation in a major way due to spectacular inefficiencies:

The global chains were likely to invest in trucking and distribution systems in India, where government estimates show 40 percent of fruit and vegetables rot before being sold because of the lack of cold-storage facilities and poor transport infrastructure. Farmers will have “assured business” if foreign companies were allowed to invest in multibrand retail, said Pratichee Kapoor, associate director for retail at Technopak Advisors Pvt...

Rajan Bharti Mittal, managing director of Wal-Mart’s wholesale partner Bharti Enterprises, in a statement yesterday called the government’s reversal an “unfortunate” decision. The policy change would have brought “farmers better realization for their produce as well as better prices for the consumer,” he said.

Let the consumers decide for themselves where to shop, I say. 40% wastage due to poor retail infrastructure is really, really terrible.