India would announce new rules for foreign investment in retail by April 2012, paving the way for companies such as Walmart and Carrefour to open stores, Junior Trade Minister Jyotiraditya Scindia said on Monday.
A government panel on inflation issued a report yesterday that recommends easing a law that prohibits non-Indian companies from operating multi-brand outlets.
Allowing foreign investment in multi-brand retail might help moderate food prices, said Kaushik Basu, the chief economic adviser in the finance ministry, who sits on the panel. Food inflation averaged 16 percent in the last fiscal year after the late arrival of rains disrupted supply.
“We are much further down the process than people think,” Scindia said, before the report was issued. “I think it is a huge opportunity” for India.
Indian law limits foreign retail investment to ownership of wholesale stores or 51 percent holdings in single-brand shops.
The government prohibition is meant to protect local store owners in the second-fastest growing major economy.
Walmart and Carrefour, the world’s biggest retailers, have set up wholesale stores in the south Asian nation of 1.2 billion people to develop their supply chains and gain a foothold in the market. The companies had made a “good start” helping farmers gain access to better technology and earn more money from the sale of their produce, Scindia said.
India was the third-most attractive retail market for global retailers among the 30 largest emerging markets, US consulting group AT Kearney said in June last year. The growing middle class, expanding economy and increasingly brand-conscious population would help push retail sales up by 35 percent over the next three years, the consultancy said.
“There are not too many large untapped retail markets left, so foreign retailers are watching this decision closely because it is a tremendous opportunity,” said Narayanan Ramaswamy, the executive director at KPMG in Chennai. He predicted the government would open the industry gradually, first lifting the cap on foreign investment to 26 percent. “It is a question of when rather than if,” he said.
Retail sales in India might swell to $785 billion (R5 trillion) in 2015 from $396bn in 2011 on economic growth, rising salaries and expansion of organised retail, Business Monitor International said. India’s $1.3 trillion economy has expanded at an average 8.6 percent a year from 2006 through 2011, government data show.
The nation’s trade ministry invited views on the matter from local and foreign retailers and industry groups in July last year. In March, Finance Minister Pranab Mukherjee, who must approve the rule change, said that a decision to allow foreign investment in multi-brand retail would need more consensus among political parties and industry stakeholders.
Scindia said: “Are we moving as fast as we would like to? The answer there is probably no. It is very important in a democracy and a coalition government when you take your path forward, it is done in a consensus.”
Bharti Walmart’s joint venture with Bharti Enterprises, operates six wholesale stores in India. Carrefour opened its first such store in December last year.
The companies argue they can improve the quality of the local supply chain if restrictions are relaxed.
About 40 percent of India’s fruit and vegetables rot before they can be sold because of a lack of cold-storage facilities and poor transport infrastructure, government figures show.
“The government hasn’t done much in terms of economic reforms so if they go ahead with this then it could be the defining economic reform of its second term,” said RK Gupta, the managing director of Taurus Asset Management.
“The rise in food inflation has strengthened the argument that the government needs to open up retail to improve the back-end supply chain.” – Bloomberg