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India boosts retail investment, paving way for Walmart

Text by News Wires

Latest update : 2011-11-24

India's government Thursday approved measures that will allow for greater foreign investment in its massive retail sector, which could boost the country's food supply chain and lead to global retailers such as Walmart moving in.

AP - India’s Cabinet decided Thursday to allow more direct foreign investment in the nation’s huge retail industry, a move that could strengthen the country’s food supply chain and open India to giant global retailers such as Wal-Mart.

The Cabinet approved 51 percent foreign direct investment in multibrand retail and increased the FDI cap in single-brand retail to 100 percent despite resistance from both allies and opposition parties.

India currently allows 51 percent foreign investment in single-brand retailers and 100 percent for wholesale operations. Top retailers like Wal-Mart, Carrefour, Tesco and IKEA have long lobbied to free the policy further.

Foreign multibrand retailers have Indian partners in wholesale operations now but have no retail presence in the country of 1.2 billion people. The spokesman for the ruling Congress party, Abhishek Manu Singhvi called the decision "centrist and reasonable." He was speaking to NDTV news channel.

The main opposition, the rightwing Bharatiya Janata Party, decried the move. "The government has clearly bowed to international pressure," Chandan Mitra, a spokesman told the same TV channel. Wal-Mart, British-based Tesco PLC and French-based retailer Carrefour welcomed the decision.

"We believe that allowing 51 percent FDI in multi-brand retail is a first important step," Raj Jain, president of Walmart India, said in an e-mailed statement. "However, we will need to study the conditions and the finer details of the new policy and the impact that it will have on our ability to do business in India," the statement added.

"Allowing foreign direct investment in retail would be good news for Indian consumers and businesses, and we await further details on any conditions," Tesco said in its statement. Tesco currently has a franchise arrangement with Tata Group’s Star Bazaar hypermarket chain, supplying merchandies to outlets in India.

Carrefour opened a New Delhi store last year and would not say what explansion plans might lie ahead. “This legal evolution should contribute to modernize the Indian food  supply chain and to fight against food inflation for the benefit of Indian customers," its statement said. It added the decision would help India’s farmers and the nation’s general economic development.

Ashish Sanyal, managing director of AMP Retail Services Pvt. Ltd, said, "It’s a good decision that will benefit everyone." He is a consultant who helps retailers enter India. More details on the Cabinet decision were not immediately available. India’s $400 billion retail market is the nation’s second-largest employer, after agriculture, according to consulting firm Deloitte.

Advocates see the move as a way to strengthen India’s almost absent food supply chain- which is so beset by spoilage, poor infrastructure, hoarding and middlemen that the government estimates some 30 percent of produce rots in a nation with soaring food costs and tens of millions who go to bed hungry each night.

If companies like Wal-Mart and Tesco are allowed to open shops of their own, they may invest billions in improving farming techniques and getting produce into stores more efficiently, bringing down food inflation - which has averaged 10.5 percent over the last year- and possibly improving rural incomes.

The Ministry of Commerce says it will cost 76.9 billion rupees ($1.7 billion) to build the additional 35 million metric tons of food storage India needs. In a July paper, it suggested that loosening restrictions on foreign investment in India’s retail sector could be the best way to get more storage space built.

Yet the country has struggled to find consensus because of concerns about what it would mean millions of small shopkeepers as well as the poor. Sanyal said small businesses had nothing to fear. "At the end of the day this is like the high tide. All boats will rise. We will learn from the big retailers."

Political deadlock on long-promised reforms like this has helped cool foreign investor interest in India. Policymakers are under acute pressure to find ways to attract foreign currency to help strengthen the rupee, which hit an all-time low against the dollar this week.

Traders say the central bank has been buying rupees in recent days but those measures are unlikely to reverse the currency’s plunge absent more far-sighted policy reform. In July, this year a government committee studying multi-brand retail had cleared the idea and suggested $100 million as minimum investment for foreign companies.

The discussions on opening up India’s retail sector have been going on for 10 years. "There is a limit to how much time we can spend on a decision."

Date created : 2011-11-24

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