Is Wal-Mart what the Doctor Prescribes? By Mohan Guruswamy.

That the Prime Minister of India met Mr. John Menzer, President of Wal-Mart has once again kindled a frenzy of excitement in the pink papers and in the business pages of their white siblings. Not since Kenneth Lay and Rebecca Mark came calling to sell us Enron's plans to lead India out of darkness have we seen such excitement. Enron was a classic con job and what is worrying is that the same people who sold Enron so hard are hard at it selling Wal-Mart. We can be sure that Wal-Mart is no Enron leading us up the garden path. It is a much-respected company whose worldwide sales exceed US$ 255 billion. It is the corporation that has transformed how America shops by giving the average American value for money. Its contribution to the American way of life cannot be any less than that of GM or IBM.

But is Wal-Mart what the good doctor would prescribe for us given our present health condition? Very simply it is all about jobs. Unlike FDI in manufacturing or IT or financial services, all of which create jobs, FDI in retail would entail job losses on a massive scale. The profile of India's retail sector with its overwhelming preponderance of small and self employed retailers is a direct consequence of our inability to provide gainful employment to the millions who join the workforce each year. At last count these numbered about 45 million. These are not just "mom and pop" businesses such as the neighborhood Kirana shop. For every one of them there are dozens of handcart and pavement vendors with little more than a pile of vegetables or fruits as their investment for survival. Food produce accounts for over 14% of all retail trade and most of our small retailers are employed in this sub segment. It is important to remember that most of them are in this business out of necessity and not by choice.

Mr. Menzer himself gave India a fine demonstration of how Wal-Mart gave America value for its money at the lunch for journalists hosted by the US Embassy on May 12, shortly after his happy meeting with Dr.Manmohan Singh. He waved his little black wallet at everyone saying: "We sell this piece, sourced from India, at $17 a piece in the US. Our competitor sells it for $70." Now that is still value for money, considering that Wal-Mart in all probability would have bought that wallet for not more than the equivalent $3. No wonder its consistently big bottom-lines had made its founder Sam Walton the richest man in the world and Warren Buffet its most happy investor. In its quest to give India too value for its money, Wal-Mart will no doubt scour the manufacturing centres of the world and give the Indian consumer goods that are value for money. Right now this means lots of Chinese goods. One must wonder what this will do to our manufacturers of consumer goods?

Wal-Mart is the USA's largest corporation and one of its most profitable. It has been good for America. Wal-Mart is in the business of making profits and it seeks to enter India in search of profits. Unfortunately there are many in this country, and some of them holding high office, who believe that Wal-Mart is carrying a cure for our economic woes. In the last few days it has been argued as to how Wal-Mart, which has 45 stores in China, out sources US$ 20 billion of merchandise from China. By contrast Wal-Mart, they woefully state, only imports only US$ 1 billion of merchandise from India and all Wal-Mart has is a procurement office in Bangalore.

But it is not as if the quantum of Wal-Mart imports are related to the number of stores. Wouldn't Wal-Mart keep importing from China even if it didn't have a single store there? China's exports amount to almost US$ 450 billion whereas India's exports are in the vicinity of US$ 55 billion. This is so because Chinese goods are manufactured to be extremely competitive in terms of price and quality. It is because of this fact, even if China did not have a single Wal-Mart, Wal-Mart would keep importing what it presently does from China. Just as it does what it does from India.

So we must discard this notion that the presence of Wal-Mart stores in India will result in more exports to Wal-Mart in the USA. For that India will have to become a much better and more efficient manufacturer of goods. All kinds of goods. China today is the world's leading exporter of cellular phones, digital cameras, computers, toys and what have you. India leads in H1B visas to the USA. No wonder the Chinese Ambassador in India is able to pithily observe that while India is the office of the world, China is the factory of the world!

How one wishes that people like Dr.Manmohan Singh spent a little more time thinking about how to make India an efficient producer of high value added goods like China has become, rather than on meeting every businessman who wants to set up shop in India. And when was the last time that Dr. Manmohan Singh met representatives of Indian farmers or small retailers or small-scale industry or handloom weavers or construction workers or anybody apart from the representatives of big business like the CII or FICCI?

Now to many of our opinion leaders having the Wal-Mart marquee adorn our urban landscape might be very important. It might even make them feel more at home here? Others might argue that it is the way of the future, while some others can justifiably argue that it will bring better management practices and new technology to shape up our agri-commodity business. One cannot but be skeptical of the argument that Wal-Mart and the likes will give India a cold chain from farm to home, a modern and efficient transportation system that will haul the cauliflower from Betul in Central India to the dinner tables in the big cities.

Assuming that all this happens, and then what will we do about the tens of millions who will become redundant? But if having a handful Wal-Mart's or Tesco's is just another totem of globalization that we must install, like the golden arches of MacDonald's, lets have them. But lets also make sure that they just don't become a conduit for foreign goods. This is important for a company like Wal-Mart will facilitate the entry of foreign goods by eliminating the multiple tiers of the traditional distribution channels in India. This can be easily achieved by insisting that they be foreign exchange neutral, say, for the first ten years.

The Commerce Minister ought to know that we still post a huge trade deficit each year. The only reason we have a reasonable good current account situation is because of "invisibles", which is what we call the remittances sent home by the millions who have been forced overseas by the paucity of jobs in India. The term "Invisibles" is full of irony as it is most appropriate for the remittances of invisible people of India who made it good abroad. But what about the invisible people who are still stranded here?