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Sep 30, 2012 at 09:54pm IST

Retail FDI won't hit small traders, will benefit consumers: Rajan Mittal

Karan Thapar: Hello and welcome to Devil’s Advocate. How do businessmen respond to the claim that FDI in retail is bad for India and Walmart in particular perhaps a disaster? Those are the key subjects I should raise today with the Vice Chairman and Managing Director of Bharti Enterprises Rajan Mittal. Mr Mittal let’s start with the claim that FDI in retail will have an adverse impact on small retailers and kirana store. Many people believe that this is proved by the fact that, as Thai experiences have shown, in the five years since 1997 when the FDI was permitted, upto 60 per cent of the Thai-owned grocery stores closed down. How can you be confident that won’t happen in India?

Rajan Bharti Mittal: You know two things I must point out Karan here is, one people are not seeing how retailing has happened in this country. If you see modern retailing or organised retailing as we call it, has been in India for almost last ten years. Big business houses are already in retail, let’s not forget that. Here we are only talking about the colour of the money. We are not saying that we will not allow organised retailing versus unorganised retailing.

Karan Thapar: So you are saying if the big domestic business house haven’t had a deleterious impact why should FDI have the deleterious impact?

Rajan Bharti Mittal: Exactly, modern retailing is only about six per cent today and it is likely to grow to about 20 per cent in about 20 years.

Karan Thapar: Except your example is partly contradicted by the British experience. To take that, between 1981 and 1999 when modern FDI based retailing became big in England, the number of British independent stores fell by 50 per cent. If it can happen in Britain, it can happen in India.

Rajan Bharti Mittal: I must point out that there are two different markets that we are addressing. If you really look at UK market, US market and India market we are more akin to China, Brazil, Mexico, Japan, and I have seen those. There if you really look at it the seven elevens of the world have actually grown over the last three years. If you see the China statistics, the domestic Chinese have grown three times. But having said that let me talk about India in particular because we should be interested here. The real estate in this country is very different than the real estate that is available across the world. There is nothing known as real estate for retailing. It is not by design, it is by default. Now would I be able to get a box, leave alone a mega box, even a 50,000 square feet in the middle of the sun flair?

Karan Thapar: You mean the cost in India is such that you won’t able to operate in the same way as say Walmart or another like Tesco would have operated in China or in a British country?

Rajan Bharti Mittal: Absolutely.

Karan Thapar: Let me then quote to you a study released by Business Line admittedly six-seven years ago. They say that if modern western retailers were to acquire a 20 per cent share in the Indian market, which is something they can easily do, eight million jobs could be lost.

Rajan Bharti Mittal: That’s completely out of line because nobody has been able to explain to me how those jobs would be lost. If you really look at our retailing today, the kirana retailing, there you will see not more than two people employed per store. That is the statistics. And we must compare apples to apples. Here the comparison is apples to oranges. Look at the mom and pop stores or the kirana stores that we have - 500-700 square feet is what they have, no more than 500-600 SKUs they have on the shop floor. Now look at modern retailing, we don’t have a box smaller than 2500 square feet anywhere. And we employ 17 people in that box and 3200 SKUs. So there is no comparison being seen in that light.

Karan Thapar: Let me then clarify for the audience what you are saying, you are saying two important things if I have understood you correctly, first you are saying that the fear that the kirana stores and small retailers will be hit, a fear that many believe is underlined and proven by the Thai experience, you believe won’t happen because already in India modern domestica retailing is functioning for 10 years and if that hasn’t affected kirana stores why would the input of FDI would make a difference. Is that the first point?

Rajan Bharti Mittal: Absolutely.

Karan Thapar: The second point that you making is that you dispute that there will be any hit in retail employment. Because once again you are arguing that the quantum of people that you will employ in your boxes or mega-boxes would be considerably larger than the number that are employed by the small retailers.

Rajan Bharti Mittal: Absolutely. I have said, 17 in a small and 200 people in a large box of 50,000. Look at the quantum, I really cannot, I must look into this study but you should also look into the study which is also being done on the same subject, you will find that the employment will only get generated. And you must have read whole lot of…

Karan Thapar: You know why people are so concerned about employment because retailers as you know is the second largest employer in India. It generates 44 million jobs. Most of those jobs are what the poor, uneducated people without skills have. And if those were to be diminished, the very poorest and the most vulnerable would be hit. So are you absolutely sure that the manner in which you are refuting this claim that the jobs will be hit will actually stand out?

Rajan Bharti Mittal: Actually it is the other way around today. People, they pass school, 10+2, they are educated so to speak but not employable. We are training these people for three to four weeks in our retail academies and they are on the shop floor today.

Karan Thapar: So you are giving them a better job?

Rajan Bharti Mittal: Oh yeah. Let me give example, in Punjab I have 6,000 people employed because we opened stores. Can even six people, leave alone 60, tell me they have been displaced because of them? Answer is no. And they are all bright boys…

Karan Thapar: So you are saying to me that not only modern retail will give more jobs compared to what traditional retail offers but they are better quality jobs as well?

Rajan Bharti Mittal: Absolutely.

Karan Thapar: Alright let’s then come to the specific criticisms made of Walmart because as you know more than me that Walmart has been picked upon by most people as a target. People think that if Walmart is demolished then FDI in retail can be demolished. Walmart is your partner in retail. Walmart is your partner and you hope to deepen the relations with Walmart as the years go on. I want to quote to you from UNI Union Global study of Walmart’s track record, a study that came out in March this year just six months ago and it says, “The presence of a Walmart store has had a devastating impact on small businesses around the surrounding areas.” And then the study quotes researchers from the United States census bureau and it says that they found that the entry of and the growth of the hyper markets has a substantial negative impact on the employment growth and the survival of the single unit and small chain stores. Now if that is to happen in India, you would devastate domestic traditional retail.

Rajan Bharti Mittal: You know Karan I have said that model is not working in India. India has a very unique model we have to realise that and this is what people are not realising that India is a different model. Let me now tell you the relationship that we have with Walmart and we have opened 18 big boxes, big boxes here means the 50,000 square feet.

Karan Thapar: Big boxes are what the world calls hyper markets?

Rajan Bharti Mittal: Yeah, I mean for us it is really compact hyper market really, hyper market is 200,000 - 300,000 square feet.

Karan Thapar: Now what happened as a result of the 18 big boxes that you have opened?

Rajan Bharti Mittal: They are wholesale boxes and there 700,000 kirana stores which are attached to that and the hurikas of the world. Somebody should talk to them. Instead of going to 30 distributors of all kind they are under one roof quality of product, pricing which is better, shopping experience which is better…

Karan Thapar: I accept the point which you are making but the important consideration at the moment is that those are only for wholesale shopping. When it becomes available for retail shopping let me quote to you once again from a study done by New York City it’s called the ‘Walmart economic footprint’, it’s dated January 2010. It says, “For every two jobs Walmart creates three are lost. And once again Atlantic City says that when Walmart entered the Austin neighbourhood of Chicago in 2006, within two years 82 out of 306 small stores, that’s just over 26 per cent, shut down. Now if you have that impact when you become a retail seller you will devastate the retail trade in India.

Rajan Bharti Mittal: As I said this study that you are referring to is very in particularly for the market which India is not.

Karan Thapar: You mean this only applies to America?

Rajan Bharti Mittal: No, because we must understand as I said real estate is not going to be in these cities, people are not going to shop 20 miles away from here we know that, people don’t have transportation, big houses. We don’t purchase goods for months like Americans do. So conditions in this country are completely different.

Karan Thapar: You are saying that the Indian lifestyle, Indian shopping habits will protect the retail trade and the small retailer will survive. Let me then quote Jayathi Ghose, one of India’s most respected economists she has written in the British newspaper The Gaurdian that for every single Walmart super market that has opened in India, 1400 small retailers will be displaced and there will 5000 job loses. Now what she is doing is to translate the American experience with all the conditions that you have attached to the Indian experience and she is saying that this will be the outcome in India.

Rajan Bharti Mittal: So why the outcome has not happened till date when there are big boxes already opened?

Karan Thapar: Because at the moment you are wholesalers you are not the retailers.

Rajan Bharti Mittal: No, no, the organised retail, the big business houses in this country have got 4,800 stores today. Let’s talk about them, let’s not talk about the foreign investment here. There are 4,800 stores today which were 5,600 stores a year back, they have declined. It’s the other way around, the modern retail has declined, if you really look at the big business houses if I name six of them at 5,600 stores which are 4,800 today.

Karan Thapar: So you are saying far from threatening small retailers the modern retail has declined because it is struggling?

Rajan Bharti Mittal: Because of the real estate, the cost of real estate, the cost of people, the cost here is very different than it is outside.

Karan Thapar: So what Walmart has done in America and I am referring to all the reports that I have quoted will not happen in India because the Indian lifestyle is different and the strength of the Indian domestic corner store is stronger.

Rajan Bharti Mittal: Far stronger. And then there are other issues that we must address, this is only one part, the other issue is about consumer.

Karan Thapar: I’ll come to that. Let’s leave that for the moment’s time. Let me raise a second concern particularly related to Walmart. It says that because India is a high manufacturing base country, a retailer like Walmart with international spread will import a vast multitude of everyday items from all over the world and particularly from low cost countries. Now, are you likely when you team up with Walmart and become a retail supplier to flood India with cheap Chinese imports, which would devastate manufacturing and once again would affect jobs?

Rajan Bharti Mittal: This is a fallacy. What stops today anybody to import? Why should one particular company be able to do it and not the others?

Karan Thapar: Won’t it be lot easier for Walmart with its size and scale and its contacts internationally to import in a big way?

Rajan Bharti Mittal: Today if you really see the WTO under the OGL everything is allowed. You go to the markets there and you will find lightings come from outside, clothing, toys and nobody as yet is bringing and having said that…

Karan Thapar: But won’t Walmart would have greater incentive to import because a) – it has already importers lined up abroad that it can import from and b) – it has the scale of operation in India which the small retailers don’t. So for both reasons Walmart may import more than a small retailer does.

Rajan Bharti Mittal: That’s what the fallacy is, today if I were to do I should have been doing it. If you come to my 18 wholesale stores which are supposed to do the same stuff at least for sale to the kiryana stores, 95 per cent plus goods are manufactured in India. Entire food, entire FMCG, completely India.

Karan Thapar: And that will continue to be the case when Walmart is the 51 per cent owner?

Rajan Bharti Mittal: Of course.

Karan Thapar: Are you sure of that?

Rajan Bharti Mittal: 100 per cent sure of that because clearly the food habits of India between Punjab and between Maharashtra are so diametrically opposite leave alone..

Karan Thapar: So large scale import will be difficult?

Rajan Bharti Mittal: Absolutely.

Karan Thapar: Let’s then come to the third concern about the Walmart once again it says that because of its size and strength and remember Walmart’s annual revenue is over $420 billion that is three and a half times bigger than its nearest international competitor because of that size and scale people say that Walmart will lose the lead in India and it will go in for cost cutting to win market share as a result of which if it won that market share it will then ramp up prices and will have a complete dominant control over the market as well as the pricing. That won’t work in India’s interest.

Rajan Bharti Mittal: That is not going to happen. So there is no question of India’s interest because people are not realising it unfortunately, people who know how India works. This is the only country probably where we have MRP, Maximum Retail Price, you may have to bring the pricing down, nobody will a lost leader for years. When you cannot jack up the prices because there is something called ceiling. People have not understood this.

Karan Thapar: The existence of a MRP, a Maximum Retail Price will ensure the loss leading doesn’t happen for too long because you cannot jack up the price?

Rajan Bharti Mittal: You cannot.

Karan Thapar: So it is a safety mechanism?

Rajan Bharti Mittal: Absolutely. Then there is competition commission, I mean despite having all the tools available, MRP is sacrosanct so why are people not looking at it?

Karan Thapar: Except that the international experience of the Walmart and this applies to every country where Walmart operate is that Walmart progressively having cut the price for the consumer then ramps the price and similar having increased the price for the farmer progressively lowers… so at both ends farmer is squeezed because it gets less and less and less progressively and the consumer is squeezed because he has to pay more and more successively.

Rajan Bharti Mittal: Well that’s not true to be honest.

Karan Thapar: That’s a myth?

Rajan Bharti Mittal: That’s a myth of course. I mean if you look at the US which they do $300 billion revenue within the US and the rest comes from the international market. They are about 11 per cent of the market and they save $230 billion worth of saving to the consumer at 11 per cent market share. At two million job employment there are only 11 per cent. So it’s a myth that they are going to squeeze both sides. In India in any case let me tell you I have about 10,000 farmers engaged today, not very big number, somebody must go and meet those farmers and see what we have done to them.

Karan Thapar: Alright let’s then bring the last concern about the Walmart, it has the reputation in America for being a very poor quality employer. People say it pays among the lowest wages, unionization is frowned upon if not prohibited and the workers are made to work extremely long hours. Will those work practices be imported into India?

Rajan Bharti Mittal: Not at all. India is a country of a difference. We are country of stature, there is nothing known as that the model which is going to be brought from somewhere and then implanted.

Karan Thapar: Except that when Walmart joins you, you will not be the majority share holder.

Rajan Bharti Mittal: Neither would they be.

Karan Thapar: But they are permitted to go upto 51 per cent.

Rajan Bharti Mittal: They are permitted to go a 100 per cent in the wholesaler. It’s still 50-50 joint venture.

Karan Thapar: So you are saying to me that when Walmart becomes a retailer and presumably as your partner, you will not allow them to have 51 per cent?

Rajan Bharti Mittal: The talks have started. All I am trying to say here is that when there was an opportunity to go 100 per cent wholesale they went 50-50 with Bharti. Now with the opening of the front end the discussion is on the table and hopefully that relationship that we have enjoyed in the last five years will continue.

Karan Thapar: So it is quite possible that when you become a retailer it will still be 50-50, not 51 in Walmart’s favour?

Rajan Bharti Mittal: That’s what I am trying to say. That’s the relationship we have despite 100 per cent being open.

Karan Thapar: In other words, the Bharti family will have a check on what people consider, rightly or wrongly the deleterious side of Walmart.

Rajan Bharti Mittal: Well I think that is unfair to make that comment but having said that I believe what’s in the interest of this nation comes paramount, other will fall out.

Karan Thapar: Rajan Mittal, the BJP has more or less categorically said that if it comes to power it will revoke permission for FDI in retail. Does that worry you?

Rajan Bharti Mittal: No, we have to see the law of the land. The Commerce Minister has very much articulated this view and I believe that the reforms are here to stay. Governments have been in place for last 20 years, many governments have come in and they have followed their path. So my belief is that as also I have to say, as they will see the success of this that the farmers, the manufacturers, the employment generation, quality, consumer all are benefiting and it’s not really harming the kirana stores, the states will start showing results and we will hope that things will fall into place for the naysayers.

Karan Thapar: You are sounding positive, you are sounding confident but let me put this to you that are you scared or apprehensive at any rate that the BJP is saying that they will revoke permission for FDI in retail by actually put off international retailers from coming to India because elections are only 18-19 months away.

Rajan Bharti Mittal: You know Karan I don’t want to get into the political side, I have seen many naysayer in my other field that I have worked in be telecom 15 years back…

Karan Thapar: I am not talking about the political side, I am asking if you are worried whether potential foreign retailers like Tesco, Carrefour admittedly your partner Walmart might be put off because they maybe apprehensive with the elections 18 months away let’s wait and see what happens before we put money into India.

Rajan Bharti Mittal: Well, I think if there is some sense of people who are standing outside, there maybe a sense of uncertainty but people who are already in India - Carrefour is in India, Tesco is in India, Walmart is in India, Spars is in India, think they know how India works.

Karan Thapar: So they will not be put off..

Rajan Bharti Mittal: I hope not. I don’t think so because it is in the interest of the nation. We are already delayed in that sense that it should not be put off.

Karan Thapar: Is this a concern that your potential partner Walmart has raised with you?

Rajan Bharti Mittal: No.

Karan Thapar: Are they worried?

Rajan Bharti Mittal: No.

Karan Thapar: They are reassured?

Rajan Bharti Mittal: Yeah, they are reassured.

Karan Thapar: My final question. As people watch political parties struggle over reforms, they have come to the conclusion that what is considered by many to be good economics, doesn’t seem to become good politics. Does it bother you as a businessman worry you that things which should be there, don’t get done because politicians think it is too expensive to get them done.

Rajan Bharti Mittal: At the end of the day, I must say if it is good economics, it is good for the country. If it is good for the country, as a citizen of this country, good economics it must be used. If it is not good for politics that I can’t speak. As I am not part of it. But as an Indian citizen, good economics makes sense for this country, I am all for it.

Karan Thapar: So as a businessman, how can you give confidence to politicians that look, go ahead with good economics. Don’t worry if there is a short-term political cost. Think of the medium and long-term where we all gain. How can you as a businessman give the confidence to do that?

Rajan Bharti Mittal: You know, we can only give confidence by doing things, by executing those policies in the right way. That it is meant for that section of the society. All the stakeholders I call them that they will you know, go ahead with those reforms. That will be shown by the government.

Karan Thapar: In other words, what you are saying is, watch how we perform. That will prove to you what we were saying was right.

Rajan Bharti Mittal: I hope so, I think so.

Karan Thapar: Rajan Mittal, a pleasure talking to you.