Wal-Mart recently decided to part ways with the Indian firm Bharti, thus ending its efforts to penetrate India.
The breakdown in cooperation between the Indian and American firms highlights some of the hardships that businesses face when considering operating in India. Due to strict foreign direct investment (FDI) regulations, undeveloped infrastructure, and corruption, India struggles to develop its retail sector.
FDI regulations have made it difficult for Wal-Mart to continue investing in India. Wal-Mart desired to operate supermarkets but was hesitant to comply with the Indian regulation that requires that 30 percent of its products must come from local, small-scale industries. With the hope of liberalizing the Indian market distinguished, Wal-Mart has been forced to face the reality that retailing is truly a local business.
Wal-Mart can help India develop a better distribution network to improve its manufacturing sector. It can increase efficiency in the supply chain infrastructure, decreasing food waste and lowering prices of primary commodities. Local Indian farmers who have dealt with Wal-Mart are pleased that it purchases their products at a fixed rate and believe that FDI increases the selection of goods.
As India struggles with slower economic growth, it should further open its markets and embrace economic freedom to turn its economy around.
India’s score in the 2013 Index of Economic Freedom, published jointly by The Heritage Foundation and The Wall Street Journal, was over four points below the worldwide average and well within the “mostly unfree” category.
One way the U.S. may be able to help is by inviting India into the Asia–Pacific Economic Cooperation forum. This group of regional economies promotes free trade and open markets in the Asia–Pacific region. Membership would require India to operate under an umbrella of increased market openness that would ultimately raise its economic freedom.
With more economic freedom, maybe Indians can live by Wal-Mart’s slogan: “Save money. Live better.”
Bethany Rudibaugh is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.