India and Wal-Mart: Democracy at a crossroads

Farmers, who comprise 60% of India’s workforce, could be one of the biggest beneficiaries of Wal-Mart and other large retail chains entering India. Currently, farmers depend on the traders at the local warehouses to sell their produce. Adding an additional competitor, particularly one that will value quality and will have the ability to pay more in the absence of middlemen, will help farmers get better deals.

While farmers get only a fraction of what their produce sells for on the market, consumers end up paying unnecessarily high prices and have limited choice because of the middleman’s cut and the fact that 40% of India’s fruits and vegetables are lost each year to wastage. Retailers like Wal-Mart will cut out middlemen and create modern cold storage systems and supply chains for produce that will help check India’s double-digit inflation.

Unlike goods sold at hand carts or small unregulated shops (kiranas), goods sold at Wal-Mart can actually be monitored by the government. That means that the more goods that are sold at places like Wal-Mart, the more revenue the government will be able to collect. This additional government revenue can be used to re-train the owners and employees of kiranas for more gainful and productive employment. In fact, India’s commerce and industry minister, Anand Sharma, expects fresh investment to generate 10 million new jobs over three years alone. These jobs will almost certainly be better than those at the kiranas, where laborers are extremely poorly treated.

Opponents must open their minds to the benefits of retail FDI. With the lack of any notable economic reforms in the last two years, a plethora of corruption scandals, slowing manufacturing and agricultural growth, rising interest rates and unbridled inflation, the Indian growth story is losing steam. Wal-Mart offers a great opportunity to get foreign and Indian investors excited again about the country’s economic prospects.

Democracies try to guarantee political rights and civil liberties, but the provision of economic freedoms is often at odds with these goals. Finding solutions to these conflicts is part of the process of becoming a mature, economically and politically free democracy.

Aparna Mathur is a resident scholar and Rohan Poojara is a research assistant at AEI.