French supermarket giant Carrefour, the world’s second largest retailer will soon open their first wholesale store in India, without a local partner. Permission to start Carrefours’ first store, comes after eight years of lobbying with New Delhi to permit entry into India’s highly regulated retail sector.
India’s stringent FDI regulations in the retail sector prohibit foreign firms from operating in India in a bid to protect local retailers. Up until now, only single-brand outlets such as Nokia or Reebok have been granted permission to open their own stores with a permitted FDI of 51 percent. Foreign retail giants such as Carrefour and Wal-Mart, both of which have been vying for India’s 500 billion dollar retail sector can only enter as wholesalers. As a result, Wal-Mart has tied up with telecom giant Bharti and Tesco has tied up with the Tata group.
“We are starting our ‘cash and carry’ business in India as the government allows 100 percent foreign investment in this segment,” Jean Noel Bironneau, general manager of Carrefour India, told AFP.
“So far FDI is not relaxed (enough) for us to launch a hypermarket,” he said. “The market in India is booming but we have to be cautious and have decided to start with our ‘cash and carry’ business first.”
Spurred by the increased buying power in India, Wal-Mart too is looking at speeding up its entry into India. Walmart already runs two wholesale stores in India and plans to open 15 additional stores in the next three years. “We will quicken the pace of expansion because when we announced our joint venture two and half years ago we talked about opening 10 to 12 cash and carry within five years time, we can now do that in probably two to three years,” Raj Jain, chief of Indian operations for Wal-Mart told the ANI.
While India does promise to be a highly profitable market for retailers, having being closed to FDI, its supply chain is relativelyarchaic. Major investments in technology and infrastructure will need to be deployed in order to kick-start operations across the country. In order to add structure, the Indian government is also working on strengthening back-end operations before opening the sector to multi brand retail. Proposals on FDI in the retail sector are expected be debated and decided on soon. Besides the retail sector the government will also look atliberalising the agriculture, defence and pharmaceutical sectors.