FDI in Multi – Brand Retail Trade: DANGER IS STILL ALIVE

The UPA-II Govt have been compelled to keep in abeyance its executive order to allow foreign direct investment (FDI) in multi-brand retail trade in the country following countrywide protest which also reflected in both the houses of Parliament during the winter session last year. The FDI in multi-brand retail is one of the short-listed reforms programme under “most immediate category” being pressed by Govt of India’s strategic partner, the USA and their cohorts in the Indian corporate and ruling political class.

This much touted programme of reform in allowing FDI in multi-brand retail which is the second biggest source of employment and livelihood for Indian populace after agriculture, was kept in temporary abeyance, not permanently shelved. Neither do the touts forget to repeat the need for bringing this back for early execution through editorials of national dailies, TV chats by their hired ideologues, nor their boss, the home of the biggest retailer company will allow them to forget. Simultaneously the interested players both in India and abroad including the biggest retailer company in the world, the Wallmart are working overtime to manage, rather to purchase consent from rulers at earliest convenience, as they have done in Mexico and many other countries.

Therefore, people need to keep the powder dry to combat the assault of ‘FDI in multi-brand retail’ which may come upon them in any time.

The Mexican experience on FDI in Retail has come to light. Reproduced below the excerpts from a write-up of Shekhar Swami published in the Business Line dated 30th May 2012. Editor ]

Wal-Mart has swept aside local retailers in Mexico in just two decades.

Several months have elapsed since the Centre kept in abeyance the decision of the Cabinet to permit foreign direct investment (FDI) in multi-brand retail. Thanks to opposition from its own allies in the UPA and to avert a crisis on this issue, the Government has postponed it and is working on “building a consensus among political parties.”

Even as we keep hearing murmurs in the media that the decision will be revived, a remarkable expose about Wal-Mart’s (the world’s largest retailer) fraudulent practices has appeared in The New York Times. The story broke on April 22 in the print version with the headline, “Vast Mexico Bribery Case Hushed Up by Wal-Mart” (http://nyti.ms/JLqDiL) The bribery relates to the period prior to 2006. The development in Mexico has important lessons for India.

The article reported the web of corruption woven by Wal-Mart de Mexico to dominate the market. The New York Times examination “found credible evidence that bribery played a persistent and significant role in Wal-Mart’s rapid growth in Mexico.” The information came out in the open when a Wal-Mart de Mexico employee (Mr Sergio Cicero Zapata, a lawyer who served the company for 10 years) who was in charge of obtaining permits became disgruntled and disclosed the facts to the US headquarters.

Rapid rise in Mexico

Wal-Mart entered Mexico in 1991. In two decades, the company has grown to a position of domination with nearly 50 per cent market share of the retail sector. Wal-Mart de Mexico has 2,765 stores and restaurants in that country, nearly four times as many stores as its nearest rival, Soriana. The company has opened new outlets at the average rate of nearly 11 a month, every month over the past 21 years. Wal-Mart has emerged as the largest private sector employer in Mexico with 209,000 employees.Two observations are noteworthy. Those who have argued that Indian small retail will coexist with big foreign retail should note that Wal-Mart de Mexico has displaced and swept aside the local retailers with ease in just two decades. For those who argued that FDI in multi-brand retail will increase employment, it is pertinent to note that Wal-Mart has taken over nearly half of Mexico’s retail business with just over 200,000 employees (the country’s population is 112 million). In contrast, the Indian retail sector provides employment to 40 million people.

Wal-Mart’s findings

Evidence of widespread bribery was unearthed by investigators. They found a paper trail of suspect payments totalling more than $24 million (Rs 120 crore). They found documents showing that Wal-Mart de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from the headquarters. In addition, investigators found that an amount of $16 million (Rs 80 crore) was directly paid by the company as “contributions” and “donations” to governments in 2003-05.

The bribes were paid through outside lawyers, fixers known as “gestores”. Wal-Mart’s investigators found 441 gestor payments just in 2003-05 (around three a week). The bribes bought zoning approvals and permits, reductions in environmental impact fees and the allegiance of local leaders. The bribes were paid “in order to build hundreds of new stores so fast that competitors would not have time to react.”

Wal-Mart violated both the US and Mexico laws. In the US, the company violated the Foreign Corrupt Practices Act, a federal law that makes it a crime for American companies and their subsidiaries to bribe foreign officials.

The then Mexico CEO, Mr Eduardo Castro-Wright, was identified as the driving force behind years of bribery. He was promoted to a bigger role in the US and became Vice-Chairman of Wal-Mart in 2008. Matters came to the knowledge of Mr H. Lee Scott Jr, Wal-Mart global CEO, in 2005.

He transferred the bribery investigation back to Mexico, where the General Counsel (who himself was implicated) closed it down. None of Wal-Mart de Mexico’s leaders were disciplined.

Irreversible damage

The damage caused to tens of thousands of small retailers, farmers and suppliers in Mexico who have been forced to shut down in the wake of Wal-Mart’s expansion, and their families can never be reversed.

Given that Wal-Mart now overwhelmingly dominates the Mexican market, it has made the entire country dependent on itself for supply of essentials, presumably limiting the action that the Mexican authorities can take. Wal-Mart has become too big to fail in Mexico, and the country has become reliant on a foreign company that is governed from beyond its borders.The Government should study the Mexican example and formulate its policies suitably to protect the masses from the onslaught of big foreign retail.

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