Wal-Mart’s tie-up with the Bharti group is yet another confirmation of the strength of the Indian growth story. Reports indicate that Bharti’s talks with the British retailing chain, Tesco, fell through because the latter put forward too many conditions, while Wal-Mart’s approach was more flexible. If so, it is very different from Wal-Mart’s usual style, which has so far been to insist on control. But then, when a bit of flexibility can deliver a market estimated to double in size to $600 billion by 2015 and currently dominated by mom-and-pop stores, it is well worth the effort. Even for Wal-Mart, whose sales amounted to $312 billion last year, it is too tempting an opportunity to let go merely because they cannot get control. The entry model has been designed to carefully skirt around the regulations barring the entry of foreign direct investment into retailing. Bharti will own the retail stores under a franchisee arrangement while joint ventures will be formed for the logistics and wholesale side of the business. Wal-Mart’s proven expertise in the field will provide added impetus to modernizing supply chains and add to the global giant’s sourcing from India, which it is already doing, albeit on a relatively smaller scale.

Nevertheless, the venture may not be all smooth sailing, not because of the competition — the opportunity is big enough to accommodate several large players — but because Wal-Mart’s experience in international retailing has not been a thumping success. Earlier this year, it has had to pull out of Germany and South Korea and it has not been doing too well lately in the United Kingdom either. Analysts point out, however, that Wal-Mart has learnt from its mistakes and has become more responsive to local preferences. Seen from that angle, the tie-up with Bharti could be a boon for Wal-Mart. The deal is also a coup for Sunil Mittal, who appears to have a gift for bringing foreign investment into his companies, Singtel and Vodafone being cases in point.

More important, however, is the fact that the Wal-Mart deal shows up the absurd nature of the regulations surrounding FDI in retailing. The idea behind the restrictions on FDI is apparently a desire to protect the mom-and-pop stores from being overrun by supposedly rapacious foreign retailers. It was always unclear what prevented them from being overrun by domestic supermarkets. But now that Wal-Mart is coming in via Bharti and will set up hundreds of stores in a matter of months, will it not have the same impact as foreign chains setting up shop here? The benefits of FDI in retailing are well-known — global sourcing, world-class logistics and higher productivity. It is time for the government to give up its hypocritical attitude and allow FDI directly into retailing.