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THE chief executive of a large European retailer was still sceptical at lunchtime on November 24th when news started trickling through that Indias government was finally letting international companies do business in the subcontinents vast retail market. I will believe it when I see it, he said. A few hours later it was official. After procrastinating for two decades, India is opening up its underdeveloped and fragmented retail market to foreign direct investment.
Foreign multibrand retailers will be allowed to own 51% of operations in India, with the rest owned by a local partner. Until now, supermarket-chains such as Walmart, Carrefour and Tesco could only establish wholesale joint-ventures. IKEA, Apple, Nike and other single-brand retailers will be allowed to own 100% of their stores. Previously, they could own just 51% of their stores, which meant that IKEA and others have stayed out of the country altogether.
All this is progress, but it comes with several strings attached. Foreign retailers will be obliged to invest $100m over five years. And at least half has to be spent to develop rural infrastructure and to establish a cold-chain system. Firms will also have to commit to sourcing 30% of their wares from small and medium-sized suppliers. Finally, foreign retailers will only be allowed to set up shop in cities with a population of over a million.
At the moment organised retail accounts for a mere 7% of the countrys $470 billion retailing businessa far lower share than in other countries. Most Indians do their shopping at the millions of kirana shops, small independent outfits that are often not much more than a hole in the wall, or buy from handcart hawkers and street vendors. These microbusinesses only sell a limited range of goods, and in tiny quantities. They are far too small to negotiate good deals with wholesalers. But the majority of Indians, especially in rural areas, shop with them because kiranas give credit and are prepared to deliver even the smallest orders.
Supporters of the governments decision say it will increase competition and quality while reducing prices. (Inflation is close to the double digits.) They predict that kiranas will continue to exist alongside foreign-owned supermarkets, because for many Indians they will remain the most accessible and most convenient place to shop. Kirana owners and their dependents, who are an important electoral constituency of the Hindu nationalist Bharatiya Janata Party, see it differently. They worry that the multi-nationals will squeeze them out of business.
The retail reform, Indias government hopes, will help it to get through a rough patch. It has been hit by a series of corruption scandals and is perceived as having stalled on its reform programme. What is more, foreign direct investment dropped 28% to $29.4 billion in the twelve months to March. Predictions for economic growth have been revised down from 9% earlier this year to 7.5%. To boot, the Indian rupee has recently reached record lows against the dollar.
Indian retail: Wholesale reform | The Economist
Foreign multibrand retailers will be allowed to own 51% of operations in India, with the rest owned by a local partner. Until now, supermarket-chains such as Walmart, Carrefour and Tesco could only establish wholesale joint-ventures. IKEA, Apple, Nike and other single-brand retailers will be allowed to own 100% of their stores. Previously, they could own just 51% of their stores, which meant that IKEA and others have stayed out of the country altogether.
All this is progress, but it comes with several strings attached. Foreign retailers will be obliged to invest $100m over five years. And at least half has to be spent to develop rural infrastructure and to establish a cold-chain system. Firms will also have to commit to sourcing 30% of their wares from small and medium-sized suppliers. Finally, foreign retailers will only be allowed to set up shop in cities with a population of over a million.
At the moment organised retail accounts for a mere 7% of the countrys $470 billion retailing businessa far lower share than in other countries. Most Indians do their shopping at the millions of kirana shops, small independent outfits that are often not much more than a hole in the wall, or buy from handcart hawkers and street vendors. These microbusinesses only sell a limited range of goods, and in tiny quantities. They are far too small to negotiate good deals with wholesalers. But the majority of Indians, especially in rural areas, shop with them because kiranas give credit and are prepared to deliver even the smallest orders.
Supporters of the governments decision say it will increase competition and quality while reducing prices. (Inflation is close to the double digits.) They predict that kiranas will continue to exist alongside foreign-owned supermarkets, because for many Indians they will remain the most accessible and most convenient place to shop. Kirana owners and their dependents, who are an important electoral constituency of the Hindu nationalist Bharatiya Janata Party, see it differently. They worry that the multi-nationals will squeeze them out of business.
The retail reform, Indias government hopes, will help it to get through a rough patch. It has been hit by a series of corruption scandals and is perceived as having stalled on its reform programme. What is more, foreign direct investment dropped 28% to $29.4 billion in the twelve months to March. Predictions for economic growth have been revised down from 9% earlier this year to 7.5%. To boot, the Indian rupee has recently reached record lows against the dollar.
Indian retail: Wholesale reform | The Economist
how many times it need to be told that super stores will open only in million+ cities which are just 53 in india. super stores are not going to open all over india i.e villages,towns & small cities. other than that kiryana stores in big cities make huge profits. the minimum monthly income of kiryana stores in big cities is no less than 50,000 Rs. i would anyday be in favor of employment to 4-5 persons even if income of kiryana store holder falls to 40,000 from 50,000. super stores would not effect kiryana stores in big cities.
