India throws open its doors to retail
November 25, 2011

Stock prices of Indian retail giants Pantaloons, Trent and Shoppers stop rallied high on New Delhi’s decision to finally swing open the doors on multi brand retail. The decision seen prompting a flurry of investments and tie-up opportunities for local players, approved 51 percent foreign direct investment in multi-brand retail, paving the entry of international firms such as Wal-Mart, Tesco and Carrefour into the US$450 billion market. The cabinet, at a meeting on Thursday evening chaired by Prime Minister Manmohan Singh also allowed 100 percent equity in single brand retailing, a decision that will encourage companies such as Sweden’s homeware firm Ikea and clothing retailers Gap and H&M to set up shop.. Until now, the country has only allowed 51 percent FDI in single-brand retail and 100 percent FDI in the cash-and-carry format of the business, operators couldn’t sell wholesale or directly to customers.

While politicians who waited on vote banks ahead of the 2014 elections were a bit skeptical to allow multi brand retail fearing the demise of the local kirana-wala or grocer, large format Indian mall owners and retail giants are jumping for joy. Supporters of the move say it will increase competition and quality while reducing prices, which have been hit by close to double-digit inflation. Additionally, allowing FDI in multi-brand retail will largely have three impacts on India — growth of retail sector will accelerate; infrastructure and supply chain improvements will bring down costs and cut wastage; and farming community will get a ‘push to productivity’.

The decision taken in India’s winter parliament session has been in the offing for almost a decade, however seeing the huge market potential and the much needed FDI and employment the sector can generate, the bill was passed. While local players were seeking a calibrated approach, international biggies who have set up presence in the wholesale cash & carry segment hoping to be able to tap the front-end were beginning to get frustrated.

“The opening up of the retail sector to foreign investment is a big win for consumers as they will have more choices. It’s a win for small industries as they will have more retailers creating markets for their products. Above all, it’s a win for the country as we will get around US$8-10 billion of fresh investments coming in over the next 5-10 years,” Kishore Biyani, founder, Future Group told DNA.

While the new rules may commit supermarkets to strict local sourcing requirements and minimum investment levels aimed at protecting jobs, according to local media, they also mean that local Indians don’t have to travel abroad to buy the latest fashion.

“This would open up enormous opportunities in India for expansion of organised retail and allow substantial investment in back end infrastructure like cold chains, warehousing, logistics and expansion of contract farming,” said CII president, B. Muthuraman.

The move will benefit the consumers, farmers and small and medium enterprises, while generating significant employment, added Muthuraman.

“India with a 8-9 percent growth in gross domestic product is a consumer driven economy and modern retail has to step up to be able to meet up consumer aspiration,” said the CII president.

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