As the early morning light slowly illuminates the mishmash of streets around the Krishnarajendra Market in central Bangalore,

pushcart vendors wade through ankle-deep mud and cow manure and past heaping piles of cabbage leaves and rotting tomatoes. Skinny porters doubled over beneath burlap sacks full of vegetables shuffle through the quagmire, trying to avoid the trucks that belch blue clouds of diesel exhaust and the sacred but occasionally cantankerous cows munching on piles of trash. Women squat behind piles of vegetables they will carry to distant neighborhoods for a tiny profit. The grocery business in India is choreographed chaos, a commercial dance honed over decades, fascinating and charming in its own way but also corrupt, unhygienic and highly inefficient. Across town, in an eight-month-old processing warehouse run by India's largest company, Reliance Industries, half a dozen women wearing balaclavas, woolen trousers and bulky jackets work inside a room kept at a constant 3 C, peeling and chopping vegetables, spinning them dry and then heaping them in small plastic packets before placing them in plastic transport crates. At the other end of the 5,600-sq-m warehouse, men unload crates of grapes from a truck pulled up to a spotless loading dock. A quality-control expert samples every tenth crate; if the grapes are good a team will ready them for delivery within hours to Reliance Fresh stores around Bangalore and as far away as Hyderabad and even Mumbai (formerly Bombay). If they're not, workers will inspect the entire shipment and discard anything below standard. Uniformed men spray lemons with water, cover crates of coriander with moistened burlap to stop the greens wilting and scan bar codes on the end of each crate. Reliance will soon install air-conditioners to keep the warehouse at 18 C even when the outside temperature hits 40 C. "It's a luxury that not many people can afford," jokes one worker. The Reliance operation is evidence of a retail revolution that is beginning to sweep India. The country's shopping sector is currently dominated by more than 12 million mom-and-pop stores, most of them tiny, dusty and offering a small and unreliable selection of goods. But now some of India's biggest companies have begun opening the first of what they say will be thousands of flashy new supermarkets across the country in the next few years. At the same time, foreign retail chains such as Wal-Mart and Carrefour are pressing to enter the market through joint ventures and by lobbying the government to change protectionist laws so they can set up wholly owned chains. The opportunities are immense. The McKinsey Global Institute, a think tank, estimates India's retail market will be worth $1.52 trillion by 2025, up from $370 billion in 2005. Though the relative importance of comestibles will shrink as people earn more disposable income, McKinsey estimates the food-and-beverage category will still account for 25% of all retail spending in 20 years.

Building shiny new stores to meet that demand is easy. The hard part will be supplying them with fresh, clean and safe vegetables and fruit through a sophisticated supply chain that links farms and consumers, country and cities. It's here that the real revolution lies. At the moment, India has one of the most fragmented produce-supply chains on the planet. Industry experts estimate more than 30% of all fresh produce is lost or spoils before it reaches the market. On average, goods pass through six or seven middlemen before a consumer can buy it, resulting in tortuous journeys, big markups and poor quality. Replacing that system requires not just building a modern, efficient network but adapting it to Indian conditions. How do you set up an efficient supply chain in a place where the roads are crowded and crumbling, the power constantly fails, the water is unsafe and the bureaucracy is complicated and burdensome? How do you transform a structure so deeply entrenched and with so many powerful political backers? How do you drag a wasteful, archaic system into the 21st century? The answer: detail by tiny detail. India's current food-distribution system is a legacy of the 1940s and '50s, when chronic food shortages led the government to crack down on hoarding of produce by unscrupulous cartels. In 1966 the government introduced a new law that banned farmers from dealing directly with retailers and forced them to sell through licensed middlemen, called mandis. The law, which also aimed to give farmers a fair and consistent price, "was initially done with a good purpose," says Arpita Mukherjee, a senior fellow at the Indian Council for Research on International Economic Relations, a New Delhi-based think tank. But over the years it grew into a monster, gaining layer upon layer of intermediaries, none of whom added any value to the fruits and vegetables they traded even as they added on their own margins. The result: a grossly inefficient system in which farmers are divorced from market feedback and often must wait months to be paid. Many farmers routinely go into debt to the very traders who buy their produce and then sell them seeds and fertilizers for the next crop. Customers, meantime, had little choice but to accept food of uneven quality and unreliable supply. "Something that was designed to protect farmers and consumers ended up hurting them," says Mukherjee. Real change began four years ago with the arrival of German retail giant Metro Cash & Carry. Foreign companies are still barred from setting up multi-brand retail outlets in India (single-brand shops, such as Nike and McDonald's, are allowed), but Metro was able to start a wholesaling business and sell directly to mom-and-pop shops, hotels, hospitals and other companies. But because the law still forced Metro to buy produce through the mandi system, there was little chance for improvements. Then Metro convinced the southern state of Karnataka, home to high-tech hub Bangalore, to change its laws to allow the

company to deal with farmers directly. Within months, the federal government was leaning on other states to follow suit. A huge opportunity had arrived. But "with opportunity comes hurdles," says Shushmul Maheshwari, head of New Delhi-based market-research company RNCOS. Nowhere is that more true than in India, where poor infrastructure and bureaucracy can combine to thwart even the best-laid plans. When Reliance, which has interests in oil and petrochemicals and opened its first retail store only last November, began exploring the possibility of a nationwide chain of grocery storesit wants to open 2,000 by next Aprilit quickly realized that it would need to build its own distribution network almost from scratch. "If we are putting up a pan-Indian business in terms of the front end, then we needed to put up a panIndian business in terms of the procurement," says Sanjeev Asthana, president of Reliance's agri-and-food supply chain. Because profit margins are thin in the grocery business, shipping delays and spoiled merchandise can be harmful to the bottom line. "You cannot afford to have an unreliable supply," says Asthana. In India, that means investing in systems that retailers take for granted in other countries. To ensure refrigeration units keep humming during the country's frequent power outages, Reliance is installing diesel generators not only in all its shops but also at its rural collection hubs, where farmers bring their produce, and at its processing centers, which usually sit on the outskirts of a city. A reliable supply of safe water in which to wash fruits and vegetables is also a basic necessity. Because city water often runs dry and can carry dangerous bacteria, Reliance has installed reverse-osmosis machines at its processing centers to clean the local water supply. Reliance says it will invest $6 billion in retail over the next few years, with some 60-70% of that going to its distribution network. "It's the cost of providing clean, safe food to consumers," says Gunender Kapur, head of Reliance's foods business. Transport is also a challenge. India's government is pouring billions of dollars into its highway system, but thanks to a swelling middle class and booming car sales, the roads are filling up faster than they can be built. For now, Reliance plans to buy mostly from farmers located within a couple of hours of major cities to shorten transport times. The company will build up its own fleet of trucks, but will also outsource some of its transport needs. Eventually, trucks will be fitted with radio or satellite transmitters that will allow a central control room to track locations and cargoa far cry from the bullock carts and rusty trucks that currently link producers and customers. Still, even the fanciest trucks must slow for bureaucracy. The country's 35 states and territories run separate tax and duty systems. To get from Bangalore to Hyderabad, about 550 km away, for example, the driving time is about 16 hours, but stops at border and tax-inspection checkpoints add two to three hours to the trip.

There are other headaches. Reliance wants to start selling meat but will have to set up a completely independent supply chain so as not to offend vegetarians, who make up almost half of all Indians. Everything, from delivery vehicles to doors leading to meat and produce sections at individual stores, will be segregated. Because mass merchandizing is so new in India, there is also a dearth of experienced managers. Companies have had to lure Indians home from the U.S., the Gulf and Europe. Reliance says it has more than 100 returnees now working for it. The goal, says Reliance's Asthana, is to "ultimately have the ability to link up all the country's markets in a ... seamless supply chain. That will reduce wastage, give the farmers more money and consumers better quality produce." But building the infrastructure may be the easy part. Convincing government and those invested in the old system that it's time for a change is still a major struggle. While the national coalition government in New Delhi says it is committed to reform as a way of helping farmers boost their incomes, its left-wing members are horrified by the prospect of a flood of organized retail outlets putting mom-andpop stores out of business. Wal-Mart, which has tied up with Bharti to set up a chain of retail stores to take on Reliance, has drawn protests, including a demonstration last February in which a generic Wal-Mart executive was burned in effigy, even before the opening of the first store. (Wal-Mart said it would not comment for this story.) Earlier this month, thousands of vegetable-selling middlemen in Ranchi, a city in eastern India, attacked three recently opened Reliance stores, which they say are putting them out of business. "We are being strangled by the capitalists," one of the protesters told a local newspaper. "After Reliance began to pay the farmers more, we also now have to pay more. But our sales have dipped as customers are being lured by airconditioned shops." In the nearby state of West Bengal, the government is likely to block licenses that would allow Reliance and Metro Cash & Carry to deal with farmers directly. "We will not allow anyone to disturb the [existing] chain," says Naren Chatterjee, chairman of West Bengal's State Marketing Board. But the new retailers argue that farmers, consumers and governments will benefit from the competition. "By structuring and organizing the trade, by getting more Reliances and Wal-Marts or Bhartis or otherwise, the government revenue is only going to go up because the corporates will pay taxes, they will not hide taxes," says Reliance's Asthana, who points to studies estimating that mandis regularly underreport their trade by up to 50% to avoid government levies. Expect more protests, and further political wafflingespecially on the issue of foreign chains investing in Indiaeven as the benefits of the revolution become apparent to ordinary consumers. Reliance says it has cut spoilage and wastage in places like Bangalore to less than 5%. The federal government is contemplating the introduction of a single

nationwide sales tax that would replace state taxes complicating distribution. It is also now talking about building its own massive coldstorage facilities outside major cities such as New Delhi to spur the transition to a more efficient supply chain. While middlemen may be feeling the pinch, farmers selling to Reliance say they're happy to be paid in cash as soon as they hand over their goods. "We were dealing with thieves who always used to cheat us," says Karnataka grape farmer Veeranna Gowda. "But we Indians believe in rebirth and because of good things I've done in the past, I am now benefiting." Reliance hopes all Indians will soon share that sentiment.