The arguments for and against FDI in retail are, at a generic level, valid on both sides. However, since the devil is usually in the detail, the facts about India’s small retailers and suppliers, the conditions stipulated for FDI, and recent experience with the effects of domestic modern retail need to be viewed together before the likely outcome pronounced. The big fight is about whether this new policy will kill small shops, massively destroy livelihoods and take away GenNext’s opportunities. Facts suggest otherwise. Consider the kirana, the one most feared to be at risk. About 5-6 million of the 8 million FMCG-stocking kiranas are in rural India, and are totally safe, as the new ones can only come into the top 53 cities.

R Sriram, founder of Crossword and retail expert, tables two insights. One, in many big cities, kiranas are already not participating in the growth offered by the newer settlements like Gurgaon or Powai, because without their advantage of historically-priced real estate, they are not viable. Two, increasingly, small shopkeepers’ children are getting better educated and want to exit ‘sitting in the shop’ as soon as possible, just as small farmers’ children are exiting farming. Sadly, the country’s retail density has been increasing in recent years, not driven by passion or profit, but because of lack of options — hopefully that will change. It is true that traditional income streams of small shops in the vicinity of a large supermarket plummet; but we have seen that they soon recast their business model, exploiting the inherent advantages they have that the supermarket cannot emulate: free, prompt and no-conditions home delivery, superior and customised customer relationship management, khaata- credit and willingness to stock small quantities of something used by only a few people in their catchment — a classic ‘long-tail’ strategy. Notice two more things: even in upper-class areas in large cities, despite large retail chains in the vicinity, the small vegetable vendor and kirana continue to find a place in the household’s shopping basket. The kirana also continuously morphs, and is already moving to a more specialised and selective portfolio. We will find them variously choosing to become more of a convenience store (7-Eleven-type), or fresh-food store, a home-delivery store, maybe even express-format franchisees of large retail, and so on.

Another reality check: how much consumption capacity do even the top 50 cities have? Seriously, how many more Ikea, Zara, Walmart, Tesco and Best Buy can a Surat, Kanpur or Indore absorb, in addition to more Big Bazaar, Megamart and Croma? Further, foreign specialty retailers targeting the rich consumer will create never-before custom, and not at the expense of existing shops. Two decades ago, we had the same hue and cry that Indian brands would be wiped out; but they got better and bigger than they would have had they been left unchallenged. Now for the suppliers. Large suppliers will lose the pricing power they had with small retailers and nobody on any side of the FDI debate is grieving for them. Small suppliers, even without FDI, are being mercilessly squeezed by middlemen. The hope is that large retail chains, unlike the broker middleman, have more incentive to pay more because they have customer loyalty and a brand to build; in exchange for steady, loyal, consistent quality supply, they will pay more, guarantee offtake, improve product and production efficiency. The FDI norm of at least 30% sourcing from small scale pushes this further. Walmart potentially could kill the small suppliers of anything by importing 70% from China cheaper; but loads of small traders are already doing the same, flooding our markets with Ganesh murtis, chappals, clothes, watches, etc.

The Achilles’ heel for a lot of skilled artisans, specialised producers, grass roots innovators, etc, is market orientation and marketing. Producer collectives have managed to organise themselves on the supply side using government assistance schemes, but they struggle to manage the demand side. That is the missing link that large retailers in vendor development mode can provide, just as the auto industry has done to ancillary suppliers. Both sides agree that customers will gain because large chain retailers can provide better for cheaper, given the discounts they get through buying large quantities and sourcing smartly. Customers will also get a wider range, more innovative products and more comfortable, truthful and informed shopping environment. Poor customers won’t get discriminated against, because the hypermarket is anonymous, transactional, classless and nonjudgemental. They may not get better service because the small Indian retailer is the champion of good service, from atta to electrical, the likes of which we haven’t yet seen any big retailer match, anywhere in the world. That’s another reason why he will always survive.

Before we fight further, consider this. This network of commercially-savvy supplychain linked small retailers is an invaluable asset: as one report said, they are not ‘unorganised’ by any stretch of imagination; we agree and have refrained from using this phrase in this article! It is unlikely that Indian jugaad will let this network disintegrate. Perhaps in rural India, where they would have been more hard hit had the big-box retailers been allowed, they would have been garnered by banks as new extension counters for financial inclusion.

economictimes.com: RAMA BIJAPURKAR INDEPENDENT MARKET STRATEGY CONSULTANT

No SUV-driving American shopper would be surprised to find 20 lb. sacks of dog chow at a Wal-Mart supercenter. But at an urban minimart that is trying to attract bag-toting pedestrians? Not so much.

Wal-Mart is struggling to expand with small stores as it seeks to penetrate big cities and jumpstart its U.S. growth. It has rolled out only a handful of Wal-Mart Express locations, and their merchandise shows a lack of adaptation from the Supercenter formula, as Shelly Banjo explains on Lunch Break.

Unless that minimart is operated by Wal-Mart Stores Inc. The Bentonville, Ark., retailer is betting that small urban stores called Walmart Express could eventually help jump-start its growth in the U.S. and fight off competition from rapidly expanding dollar-store chains.

The heavy bags of Ol’ Roy dog food suggest Wal-Mart is struggling to think outside the supercenters that remain its focus, analysts say. The world’s largest retailer has rolled out fewer than a dozen Wal-Mart Express locations since it launched the first 15,000 square-foot store a year ago, and experts say its effort to offer supercenter pricing and assortment in small, high-cost spaces is putting pressure on the minimarts’ profitability.

Wal-Mart declined to comment ahead of its quarterly earnings report on Thursday. But in a March analysts’ conference, finance chief Charles Holley said the company didn’t have enough results to open thousands of small-format stores. The venture, he emphasized, was still “a pilot.”

He described the company as moving slowly on purpose, citing a similar, 13-year effort to make its Neighborhood Markets profitable; the company has opened 199 of the grocery stores since 1998 and plans to open 80 this year. Analysts polled by Thomson Reuters project a fiscal first-quarter profit of $1.04 a share on revenue of $110.5 billion; a year earlier, Wal-Mart reported earnings of 97 cents and $104 billion of revenue. The company’s stores open at least a year are expected to report a third-consecutive quarter of modest growth.

Double-digit sales gains overseas have been a big driver of results in recent years. Investors are eager to see Wal-Mart develop a strategy for accelerating its U.S. growth.

The company wants to do the same in the U.S. At Wal-Mart’s annual meeting last June, U.S. stores chief Bill Simon said he would like the Express Stores “to deliver the same experience that a supercenter can deliver, only in 15,000 square feet.”

Problem is Wal-Mart has taken that statement quite literally, said Leon Nicholas of the consulting firm Kantar Retail.

“Wal-Mart can’t pull itself away from a supercenter mind-set,” he said. “Just look at the shelves. It is just absurd to see a dozen kinds of jelly or peanut butter when a shopper just wants to get in and out of the store quickly.”

Prices of items such as Skippy peanut butter and Kellogg’s cornflakes at a Wal-Mart Express store near Fayetteville, Ark. were identical to those at a nearby Wal-Mart supercenter, according to a recent Kantar study. The same buyers select goods for the Express stores as the supercenters.

Some customers like it. Rhonda Wright, 43, filled a plastic basket with items including cocoa butter skin lotion at a Wal-Mart Express in Chicago last week. A bank teller who lives about 15 minutes from the store, Ms. Wright said found it quicker “and a little easier to find things” than at a supercenter.

Some analysts question why Wal-Mart isn’t moving faster and why it has added or remodeled more than 120 supercenters last fiscal year, while other big-box retailers, including Best Buy Co., Staples Inc. and Barnes & Noble Inc. shutter dozens of stores.

“Wal-Mart is the only retailer out there continuing to open up big box stores, which leads me to think they’re not paying enough attention to what the consumer needs,” said Charles Grom, an analyst at Deutsche Bank who has a sell rating on Wal-Mart. “Eleven Express stores is a drop in the bucket.”

—Owen Fletcher contributed to this article.

Write to Shelly Banjo at shelly.banjo@wsj.com

A version of this article appeared May 17, 2012, on page B2 in the U.S. edition of The Wall Street Journal, with the headline: Can Wal-Mart Think Small?.