This weekend I was in Delhi at my parents' place. Had gone to the city for a business trip, and stayed back a day to dig into some of Mom's yummy chaat.
Chatting about this and that, the conversation came to the opening of FDI in retail, and whether it would be any good for us. Being a dyed in the wool reformist, I played out the usual arguments about how large format retail would increase efficiencies in the value chain, help farmers and producers get better prices, and reduce prices for consumers. Additionally, they would help allied areas like real estate, employment etc. For good measure, I added that any sector that has seen foreign money come in (telecom, airlines, insurance, automobiles, white goods etc etc has all improved product quality exponentially and driven prices down so significantly that it would have been unimaginable a decade ago.
My mom's experience had been that large format retail (think Big Bazaar or Reliance Retail) initially had low prices which caused the local kirana folks to buy from them and on-sell, but over time prices moved up and the kirana shops applied a mark up on the higher prices. Also, the large stores usually stocked sub standard produce (cold storage potatoes, stale veggies etc) which cannot be good for health, generally speaking. In dad's opinion, large format stores would drive out small shopkeepers from business, and with less competition, prices would begin to rise. While I agree with some of these points, I think they miss the wood for the trees.
I do not think that it is imperative for India to have Wal Mart stores. However, I think it is imperative that we get the intellectual property that these chains have and apply them to Indian supply chains. As for collateral damage, such as loss in livelihood of middlemen or mom and pop kirana stores, creative destruction is unavoidable. As an example, politicians in the state of UP shut down Reliance Fresh stores there, while other states have welcomed them. I do not think UP is any better off than before, or than its alternative. In the welcoming states, on the other hand, at least a large chunk of people have got gainful employment, and consumers low prices.
I am all for opening up the economy even more fully to foreign money and expertise. Long live liberalization!