VZCZCXRO0805
PP RUEHBI RUEHCI
DE RUEHCI #0200/01 1891026
ZNR UUUUU ZZH
P 071026Z JUL 08
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC PRIORITY 2063
INFO RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1937
RUEHCG/AMCONSUL CHENNAI PRIORITY 0893
RUEHBI/AMCONSUL MUMBAI PRIORITY 0898
RUEHKA/AMEMBASSY DHAKA 0604
RUEHKT/AMEMBASSY KATHMANDU 0587
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUEIDN/DNI WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEHCI/AMCONSUL KOLKATA 2521

UNCLAS SECTION 01 OF 03 KOLKATA 000200 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV EAGR PGOV IN
SUBJECT: LARGEST INDIAN SUPERMARKET CHAIN GROWS IN HEART OF 
COMMUNIST-RULED INDIA 
 
REF: A)  07 KOLKTA  0289    B)   MUMBAI 0025 
 
¶1.  (U) Summary.  "Spencer's," India's largest supermarket 
chain, and member of the Kolkata-based RPG Group, continues to 
expand in West Bengal despite the problems faced by rival 
Reliance Retail.  Spencer's Senior Vice-President, Operations 
Ramesh Menon attributed this success to the fact that his 
company's revenues from food retailing are limited and that 
Spencer's was not trying to disrupt the existing agriculture 
supply chain unlike Reliance.  When questioned about the 
different treatment that Reliance and Spencer's have been given, 
Naren Chatterjee, the Chairman of the West Bengal State 
Marketing Board and a representative of the Forward Bloc, which 
ransacked a Reliance outlet in August 2007, became noticeably 
uncomfortable and made similar arguments as Menon.  He also 
stated that Spencer's representatives had promised him that they 
would not market agricultural goods even though they now did. 
He warned that he thought Spencer's food operations were illegal 
because they had not received a clearance, and they were being 
watched and could face protests in the future.  Chatterjee 
warned that the Forward Bloc saw organized retail as a threat to 
the rural cooperative banking system of West Bengal and would 
also continue to oppose the entry of FDI because it would 
endanger the livelihoods of 300,000 retail intermediaries in 
West Bengal. End Summary. 
 
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Spencer's Expanding and Making Profits in West Bengal 
--------------------------------------------- ------------ 
 
¶2.  (U)  With 17 stores of different sizes in Kolkata alone and 
20 in all of West Bengal, Spencer's Retail, India's largest 
supermarket chain, is going strong in the heart of 
Communist-governed India.  Only recently on July 5, were there 
limited protests by local hawkers at one of its stores.  Ramesh 
Menon, Senior Vice-President for Operations for Spencer's Retail 
Limited, informed Econoff that Spencer's has some of its largest 
operations in two Communist-governed states: West Bengal and 
Kerala.  The chain, consisting of 400 stores in 65 cities, is 
part of the Kolkata-based USD 3.4 billion RPG Group.  He went on 
to add that the company planned to add two more hypermarkets 
this year in Kolkata as well as smaller stores in other parts of 
West Bengal. Despite Menon's optimism, hawkers disrupted the 
inauguration of Spencer's second hypermarket in Kolkata. The 
hawkers' representatives said the hypermarket will rob them off 
their livelihood.  However, the agitating hawkers were not led 
by the Left Front partner Forward Bloc, which is spearheading 
the movement against corporate retail in West Bengal, especially 
against Reliance Retail. 
 
¶3.  (U)  When pressed about why the company faced little 
opposition in Left-governed states, Menon added that the Left's 
rhetoric has not translated into ground-level opposition and 
that is how politics operates in India.  He added that Spencer's 
revenues from food and groceries were very small.  On the 
question of the problems faced by Reliance Retail which had to 
shut down its West Bengal retail operations because of protests 
in September 2007 (Ref A), Menon stated that Spencer's Retail 
does business in a different way.  He noted that Spencer's keeps 
a low profile in the markets that it enters, whereas Reliance 
always comes in with a great deal of publicity.  He added that 
just as important is the fact the company works within the 
existing agriculture supply-chain and does not try to disrupt it 
like Reliance was trying to do.  Menon appeared to be amused at 
the problems encountered by Reliance pointing out that the 
opposition that had become organized to take on Wal-Mart appears 
to have pointed its guns at Reliance instead; this is a view 
shared by other retail executives (Ref B). 
 
--------------------------------------------- -------------- 
---------------------------- 
Forward Bloc Says that Spencer's is Too Small to be a Threat to 
Traders 
--------------------------------------------- -------------- 
---------------------------- 
 
¶4. (U)  When questioned by EconOff as to why the Forward Bloc, a 
coalition member of the Left Front, protested against Reliance 
Retail but not Spencer's, Forward Bloc leader Naren Chatterjee 
(who is also the Chairman of the West Bengal State Marketing 
Board [WBSMB]) appeared noticeably uncomfortable.  WBSMB CEO 
Asok Santra, shared Chatterjee's discomfiture.  They informed 
 
KOLKATA 00000200  002 OF 003 
 
 
EconOff that Spencer's outlets, as well as Food Bazaar and 
Metro, in Kolkata are illegal because they received no clearance 
from the WBSMB to sell vegetables.  They claimed that Spencer's 
representatives had promised them that they would not sell 
agriculture products even though they are.  In his view only a 
small number of people go to Spencer's to purchase groceries so 
it is not as much of a threat as Reliance would have been. 
However, the Forward Bloc felt that Spencer's was expanding 
surreptitiously.  Santra, in particular, stated that Forward 
Bloc cadres were watching Spencer's very closely and if its 
sales of food products became significant or they tried to 
circumvent the current agriculture distribution system, then it 
too will face protests.  He emphasized that he had warned 
Spencer's in a letter. 
 
¶6.  (U) When pressed to answer why Reliance Retail was singled 
out, Santra answered that Reliance would have been a large scale 
operation and would have threatened the existence of the 
"mom-and-pop" stores that the Forward Bloc was defending. 
Second, Reliance would have created its own agriculture 
distribution system and thus endangered the existence of the 
3,000 small rural markets, 300 municipal markets and 40 markets 
in Kolkata in addition to the Agriculture Product Marketing 
Committees.  Third, Santra explained that Reliance would 
eventually start using contract farming techniques which would 
have led to small farmers losing their independence to decide 
what to produce, how to produce and what kind of inputs and 
seeds to use.  This would have endangered the land reforms 
initiatives of the Communist government in West Bengal. 
 
¶7.  (U) Chatterjee, who is also chairman of the West Bengal 
state rural cooperative bank, explained that FDI, contract 
farming and corporate retail in agriculture will dismantle the 
existing rural credit chain which operates through rural, 
district and state cooperative banks.  These banks advance 
working capital loans to farmers, traders and others associated 
with agricultural supply chain.  According to Chatterjee, this 
rural credit system is rather efficient in West Bengal, where 
85-90 % borrowers repay their loans with interest.  He explained 
that the entrance of organized retail could diminish the role of 
cooperative banks because an alternative financial system led by 
corporate retailers, contract farmers, and commercial banks 
would be competing with the cooperative banks for rural 
customers.  He went on to note that the cooperative banking 
system has already been jarred by the loan waiver scheme 
announced by the Central government; he noted that the waiver 
means a loss for West Bengal's rural cooperative banks because 
most these loans would have been repaid. 
 
¶8.  (U) Chatterjee acknowledged that he understood that the 
current agriculture distribution infrastructure had problems. 
Santra admitted that the APMCs had been neglected for too long 
and more needs to be spent from the state's development budget 
to improve them.  He agreed with Econoff that investment in the 
supply chain and cold storage was needed to help reduce waste 
and unlock value for farmers, middlemen and consumers.  He 
mentioned that he was keen to create a joint venture in storage 
and the cold chain with organized retailers like Spencer's.  He 
also envisioned creating a retailer called Bengal Fresh, which 
will be run as a joint venture, with the state government 
through the WBSMB holding the controlling stake to compete 
against Spencer's and the other organized retailers.  He added 
that the joint venture partner would be with a yet to be 
determined private organized retailer. 
 
¶9.  (U) Chatterjee was adamant that the Forward Bloc would 
continue to oppose FDI in organized retail.  He noted that the 
issue was not foreign money per say but the fact that it would 
endanger the livelihoods of 300,000 retail intermediaries in 
West Bengal, because he imagined that foreign players would 
bring increased automation to the supply chain.  When pressed on 
the fact that the Forward Bloc was suddenly in agreement with 
the BJP on an issue, his response was that he did not know the 
BJP's stance on the issue. 
 
¶10. (SBU) Comment:  The continued expansion and profitability of 
India's largest supermarket chain in Communist-governed West 
Bengal, while Reliance Retail was not even able to establish a 
presence does raise several issues.  Unanswered is the question 
why Reliance was singled out.  Clues to this may lie in the 
strikingly similar statements made by Spencer's executive Menon 
 
KOLKATA 00000200  003 OF 003 
 
 
and representatives of the Forward Bloc stating that the 
agricultural portion of Spencer's operation was small and that 
the company was not trying to disrupt the existing supply chain. 
 Corruption and payoffs are known to be rampant in the existing 
agricultural marketing system.  It is quite possible that 
Spencer's is buying-off the political Parties.  Though, with or 
without the presence of Reliance, West Bengal consumers benefit 
from the expanding presence of organized retail.  Chatterjee's 
comments regarding the present rural credit system, while 
generally disingenuous in failing to comment on the extortionate 
lending practices facilitated by the present system, also 
underlined how state political leaders are closely aligned with 
the many middlemen and loansharks who exploit the farmers.  The 
entrenched financial-political interests in West Bengal, as in 
much of India's rural agricultural sector, perpetuates 
resistance to outsiders who seek to break-up the existing 
system.  It is reasonable to conclude that the Reliance Retail 
constituted a direct threat to that system and was blocked. 
Spencer's took a more indirect approach and was able to operate. 
JARDINE