It’s official – the Indian retail market is now open to international chains, setting the stage for a major change of the local industry. Earlier today, the Indian government approved Foreign Direct Investment of up to 51% in multi-brand retail, a decision that will allow chains such as Walmart, Carrefour, Metro, and Tesco to expand their presence in the $450bn local market.
The move was confirmed by Food Minister K.V. Thomas, who also said FDI in single-brand retail has been pushed up to 100%, from 51% currently. The decision came after more than two years of consultations, and the result immediately sparked a rally on the Indian stock exchanges, with the price of retail stocks jumping by up to 10% late in the day.
The approval does, however, come with a set of stringent riders – foreign retailers will have to source 30% of their goods from small suppliers in India, invest $100m in back-end infrastructure, and could possibly be restricted to major cities across the country. While that could deter smaller chains from entering the market, it is unlikely to significantly scare global heavyweights, many of which already have a presence in the market through cash & carry outlets or through tie-ups with local firms.
However, while many international retailers have been pushing Indian authorities to open up the market, it remains to be seen how much of a footprint they decide to create in India. Chains looking to build a major pan-Indian presence will be faced with several issues, not least that of major logistical pitfalls such as electricity shortfalls, poor transport conditions, and a growing lack of staff talent. They will also have to fight hard against an almost certain backlash from the political opposition parties and federations of small traders, who have managed to block the opening up of the market until now.
NamNews - Friday 25th November 2011