India goes wild over Wal-Mart
Delhi finally allows investment by foreign big-box retailers, but the politicians wig out

Ravi Karandeer/Flickr

Shoppers begin to fill the aisles of Easyday market in Maharashtra, India on Nov. 14, 2011. Bharati Retail teamed with Walmart to open a string of chain retail stores across the country.

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  • India goes wild over @Walmart @dhume01

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  • Retail giants such as Walmart, once barred from selling to Indian consumers, can now own a majority stake in operations

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  • After a decade of debating, Indians should recognize the economic benefits of foreign direct investment in retail

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How can a country that aspires to be a global power be scared of a big-box store? It's a question worth pondering as New Delhi's long-delayed decision last week to open the retail business to foreign investors unleashes a predictable firestorm of protest.

Under new regulations, retail giants such as Walmart, Carrefour and Tesco, long barred from selling directly to Indian consumers, will now be permitted to own a majority 51% stake in joint operations with a local partner. So-called single brand retailers, the likes of Apple and Ikea, can own 100% of their stores, up from 51% previously. Both kinds of stores will have to source nearly a third of their goods from small and medium sized Indian suppliers as well as confine their operations to 53-odd cities with a population over one million.

After nearly a decade of debating the issue threadbare on op-ed pages and in TV studios, Indians should by now recognize the economic benefits of foreign direct investment in retail. Large foreign retailers will reduce waste by creating modern cold storage and supply chains for fruits and vegetables. They will increase choice and lower prices by cutting out middlemen, who often gouge the consumer with mark-ups above the global average. Commerce and Industry Minister Anand Sharma expects fresh investment to generate 10 million new jobs over three years, about 5-6 million of them in logistics alone.

Against this backdrop, the average resident of New York, Shanghai or Jakarta may wonder what all the fuss is about. Why should Indians care whether their televisions and tomatoes come from a store owned by a German or a Gujarati?

The answer is that India's economy may have progressed over the last 20 years, but much of its political class remains rooted in the failed ideas of the past. They see the poor as capitalism's victims rather than as its biggest potential beneficiaries. Foreign profits are synonymous with loot rather than with wealth creation that benefits all. And rather than evolve a bipartisan consensus on economic issues, many Indian leaders prefer fact-free theatrics, threats of lawlessness and the permanent agitation of the mob.After nearly a decade of debating the issue, Indians should by now recognize the economic benefits of foreign direct investment in retail." --Sadanand Dhume

A sampling of opposition to the retail opening captures this neatly. In Uttar Pradesh, Uma Bharti, a senior leader of the opposition Bharatiya Janata Party (BJP), threatened to "set fire to the first Walmart store whenever it opens." Her colleague Sushma Swaraj has been busy tweeting up a storm of misinformation about how Walmart allegedly ruined the US economy. Not to be outdone, party stalwart L.K. Advani has temporarily abandoned a quixotic quest to repatriate wealth held by Indians abroad to focus instead on the more pressing task of saving Indian sovereignty from the dangers of cheap cauliflower and cut-price T-shirts.

The BJP's response threatens to cement its reputation as a party of small minds and petty resentments. But it's hardly alone in its outrage. Uttar Pradesh Chief Minister Mayawati, perhaps best known for using taxpayer rupees to dot her state with statues of herself, dubbed the move "anti-people" and warned it would benefit foreign companies at India's expense. Striking a theatrical note, Tamil Nadu Chief Minister J. Jayalalithaa, a former actress, called the decision "a rude shock to the thunderstruck millions of traditional retail vendors in the country." The chief ministers of Bihar and Paschimbanga (formerly West Bengal) appear to share these fears.

To be sure, an outmoded political vocabulary—and the wrong-headed views it represents—doesn't explain everything. Fears that more efficient foreigners will hurt local shop owners and the old-fashioned political urge to batter an unpopular government with a populist issue play their part. But opposition by parochial interest groups and politicians placing politics above policy are impediments that pop up in virtually every democracy. What sets India apart is the near monopoly of leftist economic thinking among its politicians, including in an ostensibly right-of-center party such as the BJP. The emerging middle class will need to shake off this leftism if it's to pilot the country toward prosperity.

In that sense, the debate about Walmart in India goes far beyond shops and supply chains to whether Indian democracy can throw up the kind of leaders the country needs to be competitive in the 21st century. If India is to prosper, it needs more politicians who see clearly that even 20 years of half-hearted liberalization has generated more prosperity and hope than the 40 years of stodgy socialism that preceded it. As Indian businesses prosper abroad, more Indians ought to ask themselves why no British, Korean, American or Japanese politicians threaten to burn down stores, and why China sees big-box retailers such as Walmart as an opportunity rather than a threat.

Should the government win this political showdown by not rolling back or revising the opening, it will send a strong signal to foreign investors who had begun to despair that India's chaotic democracy remains capable of making tough decisions. In a larger sense, a victory for Walmart (and Tesco and Carrefour) will also mark a milestone in a much more important war—the war over the ideas that will shape India's economic future.

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Mr. Dhume is a resident fellow at AEI and a columnist for WSJ.com. Follow him on Twitter @dhume01

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