Dec 062011

Farmers like Avtar Singh Sidhu, who sells potatoes to PepsiCo for its Lays chips and has sold baby corn and other vegetables to Wal-Mart’s local partner, the Indian conglomerate Bharti, argues that foreign retailers will be a boon to India’s struggling agricultural sector. The multinationals, he said, will buy directly from farmers and pay better prices than local wholesalers.

Already, he said, PepsiCo is offering 6 rupees per kilo (or 11 cents) for his potatoes, while local traders offer only 3 rupees (6 cents). “We need more competition,” Mr. Sidhu said.

Late last month, as part of a push to modernize his nation’s notoriously inefficient retail economy, Prime Minister Manmohan Singh announced that for the first time big foreign companies like Wal-Mart and the British company Tesco could open retail stores in India.

Until now, foreign companies have been restricted to serving only as wholesalers in India. That has already helped create more modern distribution networks, often while generating better prices for farmers and other producers, and giving customers better deals, too.

But expanding the foreign presence to retailing has been seen as the necessary next step for modernists like Mr. Singh, who has been urging the move for years. Praise for his announcement came from India’s corporations and some of its 175 million farmers, who see the move as part of a wave of changes that might help jolt a slowing economy.

And opponents — representing the 34 million people who work in retail and wholesale businesses, as well as left-leaning politicians — were just as loud.

On the other hand, for more than a year, Wal-Mart has been operating a wholesale outlet in this northern city known for its fertile farms and hearty food. Local businessmen like Ravi Mahajan, whose family has had a wholesale general store in the narrow alleys of the Imam Nasir market for 40 years, say their sales have been cut in half as their customers — retail shopkeepers — stock up at Wal-Mart.

If the government eventually lets foreign firms expand beyond wholesaling to open retail stores, Mr. Mahajan said, many of his retail customers would be forced out of business, while squeezing out traders like himself who have long served as the crucial middleman in Indian commerce.

“We’ll be destroyed,” Mr. Mahajan said last week, minutes after he and dozens of other traders burned an effigy with a bloated belly and a crudely drawn face, meant to represent multinational marauders.

But Mr. Singh and his backers have argued that foreign retailers could help reduce chronically high food inflation — which has run around 10 percent for the last year, on top of 20 percent increases the year before. The retail proposal, proponents say, could improve the lot of the more than a half billion Indians still tied to the land, by improving the supply system from farms to consumers. An estimated one-third of some types of vegetables and fruits rot before ever reaching retail shelves.

Policy makers are looking for ways to stimulate economic growth, which fell to an annual pace of 6.9 percent in the three months that ended in September. It was the first time India’s growth rate had fallen below 7 percent in two years.

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