India loosens restrictions on foreign retailers
NEW DELHI—India is opening its $400 billion retail industry to global chains such as Wal-Mart in a move that could improve decrepit infrastructure that causes massive food waste in a country plagued by malnutrition and high inflation.
Top retailers have lobbied for years for a chance to build stores in the nation of 1.2 billion people and political deadlock on long-promised reforms in retail and other areas has helped cool foreign investor interest in India. Foreign retailers have Indian partners in wholesale operations, but no retail stores.
"Multibrand" stores such as supermarkets could be built with up to 51 percent foreign ownership under the change the Cabinet approved Thursday. The Cabinet also allowed 100 percent foreign ownership of single-brand retail operations, up from 51 percent.
Advocates see the move as a way to strengthen India's creaking food distribution system.
The country suffers chronically high malnutrition and soaring inflation, but it's not for lack of food. It is the world's second largest grower of fresh produce, yet loses an estimated 40 percent of its fruit and vegetables to rot because of a lack of refrigerated trucking and warehouses, poor roads, inclement weather and corruption. That translates into lower incomes for farmers and higher prices for consumers.
If companies such as Wal-Mart and Tesco can 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.
Wal-Mart, British-based Tesco PLC and French-based retailer Carrefour welcomed the decision.
"This legal evolution should contribute to modernize the Indian food supply chain and to fight against food inflation for the benefit of Indian customers," Carrefour said in a statement. It said the decision would help India's farmers and the nation's general economic development.
Opposition parties and some allies of the government resisted the move. The country has struggled to find consensus because of concerns that competition from the foreign retail giants could hurt millions of small shopkeepers, as well as the poor.
Speaking on the NDTV news channel, ruling Congress party spokesman Abhishek Manu Singhvi called the decision "centrist and reasonable."
The main opposition, the right-wing Bharatiya Janata Party, decried the move.
"The government has clearly bowed to international pressure," spokesman Chandan Mitra told the same TV channel.
India's $400 billion retail sector is the nation's second-largest employer, after agriculture, according to consulting firm Deloitte.
The Ministry of Commerce says it will cost 76.9 billion rupees ($1.7 billion US) 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.
Ashish Sanyal, managing director of retailing consultancy AMP Retail Services, 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."
Long delays in economic reforms in India have made investors increasingly wary of plowing money into the country.
India's policymakers are now 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 farsighted policy reform.
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," said Singhvi, the Congress spokesman.