Wal-Mart’s scorched earth policy: Is government collaborating in killing the kirana shop

The bellicose Bush Administration is pushing for various American mega-entities to make their way into India in exchange for reams of IOUs that might never be realised. There is, currently, the Bush favourite motorcycle-maker Harley Davidson—and there is the American suburban megamall, Wal-Mart, which has been legislated out of places like New York because it undercuts decades-old neighbourhood shops and destroys them. But, now, the Indian government is in the process of inviting Wal-Mart in.

By Shahid Faridi

The United States has started flexing its muscles to push its suburban megamall Wal-Mart into India. During a visit to Washington by Shyam Saran, the prime minister's special envoy, US Under-Secretary of State Franklin Lavin showed Saran a Wall Street Journal (WSJ) article, and said that the story had “sent a ripple of concern through the community of US investors looking at opportunities in India”. The WSJ is as capitalist as it can get.

The WSJ piece, dated February 1, 2007, paints a predatory picture of the investment climate in India for foreign firms. It cites incidents of foreign partners of joint ventures (JVs) being taken to court by their Indian partners for daring to grow on their own and the other legal, cultural and logistical barriers for foreign investors.

It says that although multinational companies, including the likes of Wal-Mart, were still rushing to India through JVs with local partners, the rather shaky history of such partnerships offers a warning to new entrants: that in spite of its scorching pace of growth and rapidly rising urban middle class, India can be a recalcitrant bitch of a market for foreigners to crack. Lavin flashed this admonitory WSJ article in Saran’s face, as if the article was writ in stone. In fact, the US Under-Secretary for International Trade suggested that the Government of India “take a look” at the issues raised in
the article.

Saran dutifully carried the article back home; it was later forwarded by a joint secretary of the ministry of external affairs via a letter dated February 6, 2007, to the department of industrial policy and promotion, ministry of commerce and industry, with a note that Lavin would be visiting New Delhi the week after and appropriate action should be taken on the issues he had raised.

The fact that the Bush Administration is now directly and unashamedly lobbying for Wal-Mart is no longer a secret. This is also evident from the confidence with which Bharti Enterprises, the Indian partner of the proposed JV with Wal-Mart, is going full-steam ahead with its plans.

In a letter to an under-secretary in the ministry of commerce and industry on February 18, 2007, Vijaya Sampath, general counsel and company secretary of Bharti Enterprises, gave a detailed update on February 18, 2007, to the ministry of commerce and ministry on the progress made on their JV with Wal-Mart.

“We are working with our joint venture partner on business plans and developing the infrastructure required to implementing the plans. These include market surveys, collection and analysis of data, evaluating potential suppliers and suitable land and building space for the location of our operations,” his letter says. It adds that the JV expects to commence operations from August-September, 2007.

All this gung-ho and feelgood at a time when the political atmosphere in the country has never been so despairingly against allowing foreign investment in the retail sector, a dismay led by none other than the president of the ruling Congress party and chairperson of the ruling coalition, Sonia Gandhi.

Analysts say that Bharti’s confidence stems from the fact that the Bush Administration has thrown its considerable weight behind Wal-Mart’s attempt to enter India. Another instance of the US lobbying for firms to get a foothold in India came last October when Timothy Adams, Under-Secretary for International Affairs, US Treasury Department, wrote a letter to Finance Minister P Chidambaram, seeking a Foreign Investment Promotion Board (FIPB) clearance for Guardian Industries to set up a US$ 200 million glass-making facility in India.

This is the same Guardian Industries that had established a floatglass factory two decades ago in Gujarat in a tie-up with Modi Rubber. Guardian's proposal is being opposed by the Modis, who say that the shareholders’ agreement between them and Guardian does not allow the latter to set up a glass unit on its own. Guardian disputes this—the matter is now in court. Notwithstanding the matter being sub-judice, Adams makes a strong pitch for the firm in his letter, which unequivocally states: “We understand the issue before the FIPB is whether Guardian's proposed new plant will harm its joint venture with Modi Rubber in any way. We believe it will not, as we understand that the new plant would share certain logistical costs and improve the joint venture's competitiveness. Furthermore, the new plant would be located in a different state and produce different glass products for a different market.

"We believe the timely approval of Guardian's case would be appropriate and would serve as a timely indication of your continued commitment to growth and liberalization," the letter adds.
What is notably more important is the fiery pace at which this file moved, with notings on it made of the letter that were apparently pushing for Guardian. At one place, a scribble by director, investment and FIPB, reads: "For approval, please." Another noting says that the finance
minister had been kept informed about the issue.

Back to Wal-Mart, now: The present political shrilling over allowing the global retail giant into a country where there are millions of street-corner kirana shop-owners whose livelihood is now at stake began way back in April 2006, when a letter to the prime minister by a Forward Block Member of Parliament, Bir Singh Mahto, painted an ominous picture of what is known worldwide as the "Wal-Mart effect".

Mahto’s letter said: “Retail is the single-largest component of the Indian services sector in terms of contribution to (the) GDP. Its massive share of 14 per cent is double the figure of the next largest broad economic activity in the sector; with unorganised retailing constituting 98 per cent of total funds. The industry employs more than 4 crore people. That about 4 per cent of India's population is in the retail trade says a lot about how vital this business is to the socioeconomic equilibrium in India …The proliferation of the kirana stores is the lifeline of many families in the country.” Mahto added that inviting foreign investment in the retail sector would be an act of “labour displacing to the extent that it can expand by destroying the traditional (unorganised) retail sector”.

“I firmly believe that any policy that results in the elimination of jobs in the unorganized retail sector should be kept on hold,” he added. The letter was copied to the ministers of finance, commerce, agriculture, rural development and labour. Needless to say, the government ignored Mahto’s plea and went obdurately ahead: in any case, the Forward Block does not affect the health of the coalition in any significant manner. But this small letter was the first warning of the larger Left attack that we are witnessing today. But, perversely, the biggest worry about the Left's attack now is that it is largely silent. There are no fiery press conferences, there are no threats to withdraw support. There is just a silent, flow-burn simmering. Prime Minister Manmohan Singh should know—indignation is hot, anger is always cold.

Perhaps the most telling criticism of the Central government in the ongoing saga surrounding Wal-Mart came from none other than the father of India's "Green Revolution", M S Swaminathan.
In a letter to T K A Nair, principal secretary to the prime ministry, and as early as on December 9, 2006, Swaminathan said: "… the impact of transnational supermarkets on the livelihoods security of millions of women and men engaged in small-scale retail operations including vending of vegetables and fruits should be studied before permission is given. A livelihood impact analysis is a must, if we are not to aggravate problems of poverty and destitution." Was this done? Is anybody listening in the superfast gravy train of grabby foreign investments?