On Sept. 14, the Indian Prime Minister, Dr. Manmohan Singh, boldly pusheda major economic reform that would open up India’s vast retail market to greater participation by foreign companies.
By leaving the implementation of this new reform up to the country’s states, Singh avoids having to push too hard while still getting credit for taking a proreform, progrowth stance that plays well with the foreign investors who have cooled on India.
It’s a canny move. States with big urban centers and enough middle-class consumers to actually shop at foreign retail outlets are likely to move forward on retail reform. Poorer, less urbanized states and those where India’s traders and merchant castes are politically powerful can opt out.
Once the reforms take hold, India could see some profound changes. India lacks the infrastructure like refrigeration and warehousing that most big retailers are used to, so Walmart, Carrefour, Tesco, et al. would have to build it themselves. That would benefit the entire retail-supply chain in India, decreasing spoilage and reducing time to market. To take advantage of economies of scale, those retailers will also — as Walmart does now on a limited scale — deal directly with farmers.
Don’t be fooled: these big-box stores will not suddenly replace India’s mom-and-pop stores by undercutting their prices. That’s the experience of retail in the U.S.: the small retailers that once served the middle classes could not match Walmart’s much lower prices. The Indian retail market is different. Yes, they may be locally owned, but those small retailers keep their prices low because they use only the cheapest possible casual labor and invest next to nothing in their stores. Prices cannot get any lower; in India, Walmart can compete only by offering higher prices — and better quality to attract the middle-class consumers who are able to pay. A handful of Indian big-box retailers and high-end specialty stores are already using that strategy.
Read more: How Walmart and Other Big-Box Stores Will Affect India’s Retail Market | World | TIME.com
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