Global supermarket chains come to India

Business

Global supermarket chains come to India

Close

India said on Friday that plans to open its vast retail sector to global supermarket chains.

25 November,2011 03:30 pm

It is expected to create millions of jobs after the cabinet approved the long-awaited reforms.The pledge by Commerce Minister Anand Sharma came after heated opposition protests stopped the government announcing details in parliament about its move to relax foreign ownership rules for retailers such as Wal-Mart.The changes would push India further towards a modern consumer society but they are contested by opposition lawmakers who fear large supermarkets will kill small family-run stores where most Indians now shop.The reforms will give a fillip to job creation, creating five to six million jobs in transport and other logistics over three years, Sharma told a news conference.The government plan will open up the sector, worth an estimated $470 billion in annual sales, to allow Wal-Mart, Tesco and other global firms to hold a 51-percent stake in multi-brand retailers.The cabinet also raised the foreign investment cap to 100 percent from 51 percent for single-brand retail operations such as Gucci, Nokia and Reebok.This has been a long time coming, and will be welcomed by big foreign and domestic retailers, said analyst Arvind Singhal, head of consultancy Technopak Advisors.The Congress-led government has been seeking to fend off charges of policy paralysis after being engulfed in a string of corruption scandals.Its decision, called a game-changer by Indias business leaders, was seen as a sign of its intent to press ahead with a reformist agenda despite strong political opposition.Were opposed to foreign direct investment in the retail market as it will instantly kill all small traders, Murli Manohar Joshi, a veteran leader of the main opposition Bharatiya Janata Party (BJP), told reporters.The BJP will oppose it in parliament and outside, Joshi said.Foreign multinationals have lobbied for years to sell directly to consumers in the worlds second most populous nation.Multi-brand foreign groups such as US-based Wal-Mart currently operate as wholesalers in India but are prevented from selling directly to the public. The vast majority of consumers currently shop at small local markets.Raj Jain, chief executive of Wal-Marts Indian arm, said the governments move contributed toward Indias image as a welcoming destination for international businesses.Critics have worried that modern, large-format stores will drive small shops out of business, despite assurances from industry figures that the growing market is big enough to embrace all models.Currently, family-run stores account for 90 percent of the sector, the second-largest employer after agriculture in the country of 1.2 billion people.There is no government policy to protect us if the foreign supermarkets come in. Theyll offer better prices. Of course it will mean less business for us, said Deepak Sethi, 33, who runs a family-owned store in New Delhi.To make the policy more palatable, strict conditions have been imposed on foreign retailers who will have to bring in a minimum $100 million investment.Half of this will have to be spent in modernising Indias back-end infrastructure such as cold storage, processing and packaging.Some 40 to 50 percent of perishable goods produced by farmers sweating in the fields never reaches the markets, minister Sharma noted.Unless (this reform) is done, we will have a situation continuing where the farmer bleeds and the consumer is fleeced, he said.Foreign retail players will also have to source at least 30 percent of manufactured and processed products from small-scale Indian companies.This is a distinct and different Indian model, Sharma said.