India has approved a controversial plan to open its $400bn-plus retail sector up to international supermarket chains and to allow foreign single-brand fashion labels to have 100% stakes in their Indian operations.
The country’s Cabinet approved Friday the plan that will allow international firms to hold a 51% stake in multi-brand retailers, marking one of the country’s boldest economic reforms for some time.
It also hiked the foreign investment cap for single brand retail operations such as Gucci, Gap and adidas – to 100% from a current 51%.
Foreign multinationals such as Wal-Mart, Carrefour, Tesco and Ikea have lobbied for years for the chance to sell directly to Indian consumers, seeking access to a market estimated by Indian consultancy Technopak to be worth $470bn a year.
"We believe that allowing 51% FDI in multi-brand retail is a first important step," Raj Jain, president of Walmart India, said in a statement. "However, we will need to study the conditions and the finer details of the new policy and the impact that it will have on our ability to do business in India," the statement added.
"Allowing foreign direct investment in retail would be good news for Indian consumers and businesses, and we await further details on any conditions," Tesco said in its statement. Tesco currently has a franchise arrangement with Tata Group's Star Bazaar hypermarket chain, supplying merchandise to outlets in India.
India currently allows 51% foreign investment in single-brand retailers and 100% for wholesale operations.
The spokesman for the ruling Congress party, Abhishek Manu Singhvi called the decision "centrist and reasonable." He was speaking to NDTV news channel.
The move has faced some fierce opposition, mostly from left-wing political parties concerned about the future of small businesses and mom-and-pop stores, which they say could find it difficult to compete with big multinationals.
News of the decision actually pushed up the shares in Indian retailers Friday morning, with some big names expected to benefit from deals with foreign companies. Pantaloon Retail (India) leaped 18.2%, Shopper’s Stop rallied 15% and Tata unit Trent rose 17.2%. In contrast, India’s main stock market index was down 0.29%.
Concerns arose however that caveats aimed at appeasing political opposition to the decision could hinder investments.
For example, local media reported that individual states would have the power to veto foreign retailers. This could make it impossible for these companies to work in some of India's biggest states, such as Gujarat, which are run by the country’s opposition party.
"The global players who are there in India will definitely take this opportunity to scale up their investment in the country and that will happen in the near future,” said Govind Shrikhande, managing director of Shoppers Stop. “But I do not see a lot of investments coming in immediately because getting into India and setting up shop will take time. So the impact really can be substantially felt over a 3-5-year period.
"For our company, we are not looking at tie-ups on the department stores side as they do not travel globally but on the food retail side which we run under Hypercity which is hypermarkets we are open to partnerships and will evaluate options going forward."
Jay Shankar, chief economist at Religare Capital Markets in Mumbai, said: "I think foreign chains can also bring in humongous logistical benefits and capital. There would be stupendous benefits from this move in terms of upgrading infrastructure, cold storage and it would eliminate layers of middlemen.”
Also, “it will give good prices to farmers and make it affordable for consumers, ease out supply chain bottlenecks and reduce inflation."
Meanwhile, India's commerce minister said Friday that the decision to open the country's retail sector to global chains has a built-in safety net for small shops and farmers.
Anand Sharma told reporters the initiative would vastly improve decrepit infrastructure that causes massive food waste in a country plagued by malnutrition and high inflation.
Sharma said the new rules would only apply in cities with more than 1m people. The minimum investment would be $100m and half of this would have to be invested in rural infrastructure and refrigerated transport and storage. Thirty percent of the produce sourced by the retailer would also have to come from small and medium enterprises.
Sharma said the policy would have a "multiplier effect" and tens of millions of people would gain jobs.
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," he said.
The country’s Cabinet approved Friday the plan that will allow international firms to hold a 51% stake in multi-brand retailers, marking one of the country’s boldest economic reforms for some time.
It also hiked the foreign investment cap for single brand retail operations such as Gucci, Gap and adidas – to 100% from a current 51%.
Foreign multinationals such as Wal-Mart, Carrefour, Tesco and Ikea have lobbied for years for the chance to sell directly to Indian consumers, seeking access to a market estimated by Indian consultancy Technopak to be worth $470bn a year.
"We believe that allowing 51% FDI in multi-brand retail is a first important step," Raj Jain, president of Walmart India, said in a statement. "However, we will need to study the conditions and the finer details of the new policy and the impact that it will have on our ability to do business in India," the statement added.
"Allowing foreign direct investment in retail would be good news for Indian consumers and businesses, and we await further details on any conditions," Tesco said in its statement. Tesco currently has a franchise arrangement with Tata Group's Star Bazaar hypermarket chain, supplying merchandise to outlets in India.
India currently allows 51% foreign investment in single-brand retailers and 100% for wholesale operations.
The spokesman for the ruling Congress party, Abhishek Manu Singhvi called the decision "centrist and reasonable." He was speaking to NDTV news channel.
The move has faced some fierce opposition, mostly from left-wing political parties concerned about the future of small businesses and mom-and-pop stores, which they say could find it difficult to compete with big multinationals.
News of the decision actually pushed up the shares in Indian retailers Friday morning, with some big names expected to benefit from deals with foreign companies. Pantaloon Retail (India) leaped 18.2%, Shopper’s Stop rallied 15% and Tata unit Trent rose 17.2%. In contrast, India’s main stock market index was down 0.29%.
Concerns arose however that caveats aimed at appeasing political opposition to the decision could hinder investments.
For example, local media reported that individual states would have the power to veto foreign retailers. This could make it impossible for these companies to work in some of India's biggest states, such as Gujarat, which are run by the country’s opposition party.
"The global players who are there in India will definitely take this opportunity to scale up their investment in the country and that will happen in the near future,” said Govind Shrikhande, managing director of Shoppers Stop. “But I do not see a lot of investments coming in immediately because getting into India and setting up shop will take time. So the impact really can be substantially felt over a 3-5-year period.
"For our company, we are not looking at tie-ups on the department stores side as they do not travel globally but on the food retail side which we run under Hypercity which is hypermarkets we are open to partnerships and will evaluate options going forward."
Jay Shankar, chief economist at Religare Capital Markets in Mumbai, said: "I think foreign chains can also bring in humongous logistical benefits and capital. There would be stupendous benefits from this move in terms of upgrading infrastructure, cold storage and it would eliminate layers of middlemen.”
Also, “it will give good prices to farmers and make it affordable for consumers, ease out supply chain bottlenecks and reduce inflation."
Meanwhile, India's commerce minister said Friday that the decision to open the country's retail sector to global chains has a built-in safety net for small shops and farmers.
Anand Sharma told reporters the initiative would vastly improve decrepit infrastructure that causes massive food waste in a country plagued by malnutrition and high inflation.
Sharma said the new rules would only apply in cities with more than 1m people. The minimum investment would be $100m and half of this would have to be invested in rural infrastructure and refrigerated transport and storage. Thirty percent of the produce sourced by the retailer would also have to come from small and medium enterprises.
Sharma said the policy would have a "multiplier effect" and tens of millions of people would gain jobs.
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," he said.
