India expands opportunity for foreign retailers
Friday, November 25, 2011
NEW DELHI (AP) — India’s Cabinet decided Thursday to allow more foreign direct 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.
Top retailers such as Wal-Mart, Carrefour, Tesco and IKEA have long lobbied for a chance to build stores in the country of 1.2 billion people. Foreign multibrand retailers have Indian partners in wholesale operations, but no retail presence.
Multibrand retail stores could be built with up to 51 percent foreign direct investment under the change the Cabinet approved Thursday. The Cabinet also allowed 100 percent foreign direct investment of single-brand retail operations, up from 51 percent.
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 the country’s produce rots while food costs soar and tens of millions of people go to bed hungry each night.
Opposition parties and some allies of the government resisted the move. The country has struggled to find consensus because of concerns about whether expanding foreign investment could hurt millions of small shopkeepers, as well as the poor.
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 right-wing 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.
“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.
Raj Jain, president of Walmart India, called it an “first important step,” but added in an e-mailed statement that the company will need to study the details further to determine how it will affect its ability to do business in India.
Tesco currently has a franchise arrangement with Tata Group’s Star Bazaar hypermarket chain, supplying merchandise to outlets in India.
Carrefour opened a New Delhi store last year and would not say what expansion 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.
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.
Sanyal said small businesses had nothing to fear from the big chains.
“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,” Singhvi said.
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