About eight years ago Bharti Enterprises and Wal-Mart jostled through the most stringent government conditions, resisted homegrown retail giants who wanted to keep foreign players out and made a grand entry with a partnership despite no foreign investment being permitted in retail at the time. Wal-Mart, going against all its policies chose to venture into India even though the stores they would jointly set up would not be called ‘Wal-Mart.’ Ironically, after nearly seven years and within months of the government lifting all restrictions from foreign investments in multi-brand retail, Wal-Mart and Bharti Enterprises have broken up. Both companies will pursue their own plans in the retail sector independent of each other.
This development throws up a number of questions: should this be considered a blow to the FDI possibilities within the sector? Has this parting of ways shown that foreign giants don’t bring enough to the table to be game-changers? Are Indo-foreign joint ventures often on rocky footing due to mismatched expectations of both economic returns and politico-bureaucratic environments?
In 2005-06 this reporter broke the story that Wal-Mart’s entry into India would be with Bharti Enterprises. Within hours of that a lot of criticism surfaced including a scathing letter written by Sonia Gandhi to PM Manmohan Singh asking him questions like “what’s Wal-Mart and why does India need it?” Foreign players were unwanted and the writing was clear on the political wall. With the economist prime minister and his worldy-wise commerce minister Kamal Nath in tow, what followed were several press conferences to allay fears of FDI in the country. Wal-Mart had entered with foreign investment in wholesale, widely seen as a stepping stone to gain further entry into ‘big retail.’ Today, even as everything in this sector has been opened up, this news comes as both a boon and a bane.
Bane because it reflects poorly on India’s ability to keep foreign investment in the country. The break-up of Wal-Mart does raise questions about the environment in which these firms have to do business. A lack of clear-cut guidelines and bureaucracy faced in expanding the stores also saw instances of financial irregularities – Wal-Mart even had to let go of its CEO and chief financial officer. Accusations of lobbying by Wal-Mart in the United States with policy makers also highlighted why despite the high stakes of the Indian markets, our policy makers failed to explain to investors the rules of the game in India. And if this break-up leads to an eventual exit for Wal-Mart from India it will not augur well for a country which is desperately trying to attract dollars into an economy seeking investments.
And boon because it puts the FDI debate in perspective. Could it be that foreign players are not a necessary condition for Indian retail to flourish? Homegrown retailers and players have been ‘big retail’ without foreign relationships and seem to be doing good business. Kishore Biyani, India’s first homebred retailer has defied all foreign investment lures and stayed within the shores saying learning through mistakes is the best investment he has ever made. Bharti Enterprises on their part created a fair bit of infrastructure in Ludhiana, Punjab and has understood parts of the supply chain. Reliance and Birlas with their respective chains still survive and are now looking for the next big scale up to begin. Did India get its original FDI debate wrong? Did we fall for the lure of high growth rates, which later proved minimal job creation? Small stores have survived the onslaught and continue to serve their purpose of being neighbourhood conveniences.
However, before celebrating or mourning the demise of this alliance it is critical to note that the need for investments in the retail sector is urgent. A sector which can create millions of jobs and add to the GDP of the country is struggling for fresh investments. The government’s inability to have an investor and industry friendly policy has been a sore thumb which continues to stick out and hurt the rest. Ambiguity and a lack of ambition in having a vision to redefine Indian retail has been the biggest failing. The Bharti Wal-Mart episode is a mere footnote in that narrative.