On Wal-Mart... In Brazil

Eat your heart out, my fellow Indians, as Wal-Mart announces an investment of over US$1 billion in Brazil. That is 40,000 crore rupees. Big bucks indeed.

Thousands of new jobs will be created in addition to the 70,000 already employed. Think of all the youngsters studying retail management in India. Their futures would be bright if FDI in retail was free.

Of course, the greatest gainers in all this will be ordinary Brazilians, who will be able to buy better goods at cheaper rates. Incidentally, even in the USA, Wal-Mart is the preferred store of the poor. There are other supermarket chains for the middle class and the rich.

In India, politicians like Kamal Nut are blocking FDI in retailing. They claim that they are doing this to help small shopkeepers survive. As I have argued in an earlier post, this is bunk. Poor people in India buy what they need in extremely small quantities, and they will therefore shop in small stores. Further, if you want to help small shopkeepers, FDI in wholesale supermarkets is the best prescription. These efficiency gains will filter down to poor consumers too.

In underdeveloped countries like India and Brazil, the distributional chain is extremely long and therefore inefficient. This impacts the poor consumer hardest. K Nut & Co. want to "protect" the inefficient. They care nothing for the consumer. Yet, everyone is really fighting for his custom.

This manner of political protection is just a racket, without any backing of sound principles. Thus, they are actually harming the nation.

In either case, it is not that big-ticket retailing has been banned. There are many Indian firms entering this business. Why should they not compete with the likes of Wal-Mart? The consumer gained when foreign automobile companies came in to compete with Tata, Bajaj, Birla and Mahindra. In precisely the same way, students would gain if foreign universities were allowed to set up shop here. The case for opening up the country to FDI in retail rests on similar grounds.

We can either have policies to protect local businessmen. Or we can have policies that will benefit local consumers. Which policies are better for the nation?

Make your choice, dear reader – and tell politicians like K Nut what you would prefer. It is only public opinion that can change the politician's mind-set.