Oct. 8 - Tens of thousands of demonstrators are expected to take to the streets of Mumbai tomorrow, as a massive corporate push into India's retail market spurs backlash among those seeking to protect the livelihoods of small merchants and squelch the plans of large Indian retailers and foreign giants such as Wal-Mart Stores Inc.
The protests are the latest example of how the push to establish chains of stores and the infrastructure to support them is prompting popular and political response that clouds the transformation of how people shop in the world's second-most-populous country. Protesters contend that large retailers will throw hundreds of thousands of smaller merchants out of work, an issue that has been simmering in the U.S. for decades.
India remains one of the most attractive markets for the global retail industry, and analysts expect large retailers to succeed over the long term. Still, public pressure could create difficulties, and some analysts say big retailers must take a proactive stance to prevent the opposition from escalating.
Wal-Mart has established a joint venture with local industrial giant Bharti Enterprises Ltd. to set up a chain of wholesale cash-and-carry stores that sell to restaurants, smaller shops and other businesses. Bharti also plans a chain of supermarkets. Aditya Birla Group, another Indian conglomerate, plans its own retailing empire. Reliance Retail Ltd., part of Reliance Industries Ltd. of India, already has 335 Reliance Fresh outlets selling fruits and vegetables and has plans for thousands more.
Big retailers have done little to counteract the heat they are receiving, in part because many remain in the early stages of rolling out their networks.
"There has to be a change in the strategy of Reliance, Bharti and other entrants into the sector," said Shushmul Maheshwari, an analyst at Research and Consulting Outsourcing Services.
"The current situation predicts uncertainty for short-term investors," said Priyank Singhal, analyst at Edelweiss Securities in Mumbai. "Retail would be a booming industry from a long-term perspective, but unless some regulatory aspect comes into force, investors should be careful."
A Reliance spokesman said the Mumbai demonstrations wouldn't affect its plans to expand elsewhere in India. Bharti and Wal-Mart declined to comment.
India's total retail market is valued at about $370 billion a year and will expand more than 55% in the next four years, according to Technopak Advisors, a New Delhi-based consulting company. Supermarkets and department stores account for less than 5% of the industry, with millions of small grocers, tobacco stands and tea stalls constituting the rest.
As India's middle class grows and the shopping expectations of its citizens increase, retailing has become a magnet for Indian conglomerates and for Wal-Mart and other foreign operators. Foreign operators are restricted to minority investments in retail ventures, but they can establish cash-and-carry stores.
Wal-Mart and Bharti are in the planning stages. Because Reliance is the furthest along, it has encountered the most static. It recently quit the state of Uttar Pradesh, India's most populous, with 170 million people, and will shut 20 stores. The move came after the state government said it wanted to close stores following violent protests by opponents of large-scale retail, a Reliance spokesman said. He said the setback wouldn't alter its growth plans.
Investors have piled into some of the few purely retail stocks on the Bombay Stock Exchange in the past year, part of a rush of foreign money into India's sizzling stock market. Still, shares of the biggest Indian participants haven't been much affected because retail remains a tiny part of their overall businesses.
Shares in Pantaloon (Retail) India Ltd., for instance, which owns Food Bazaar and Big Bazaar, two supercenter chains, have risen about 47% in the past year. Yesterday, the stock closed down 5% at 537 rupees ($13.69). Vishal Retail Ltd., which owns Vishal Mega Mart stores, which eased 0.8% yesterday to 735.65 rupees, is up 56% since the stock first traded, on July 4.
The demonstrations in Mumbai are organized by the Committee to Protect Retail Trade, a Mumbai-based group of traders, hawkers and trade unions. In particular, the protesters want a repeal of a federal law passed in 2003 that allows companies to procure products from farmers and set up their own local markets for trading agricultural products separate from those run by the government.
The law, known as the Model Agricultural Produce Market Committee Act, has been implemented, with some variations, by a few states. Previously, farmers would take their produce to state-regulated cooperatives and sell to wholesalers, who would sell to retailers.