Indians brace for further competition, survival as foreign brands enter retail market

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View of a supermarket store in India. Photo - Firstpost.com

It was a perfect Thanksgiving gift to the global retailers by India. On Friday, India announced that it will open up its US$451 bn retail sector to foreign companies.

Global multi-brand companies like Carrefour, Tesco, Wal-mart and others have got the nod from Indian government to hold a majority stake in their India-based operations. Single brands like Gap, Ikea, Nike and the likes will be allowed to have 100 per cent ownership of their stores.

However, New Delhi has imposed certain conditions upon the companies who are keen to exploit the massive Indian market.Foreign retailers are obliged to invest at least $100m over the next five years to get the 100 per cent ownership licence. The government wants the brands to spendat least half on developing rural infrastructure and establish a cold-chain system. Multinationalswill also have to source 30 per cent of their resources from local small and medium-sized suppliers.

Global brands are finding Indian retail industry an extremely lucrative market. Analysts point out that current operations of foreign retain chains account only 7 per cent of the total US$471bn pie and believe there are mouth-watering opportunities for corporations like Carrefour, Ikea, Nike, Tesco, Walmart etc. to grow manifold and capture the market.

This change in policy is a good start to a win-win decision for all stakeholders, including customers, farmers and the government. Through our participation in front-end retail, we look forward to playing a role in Indias success story by contributing to the economy and helping Indians save money, said Doug McMillon, President and Chief Executive of Wal-Mart International.

Interestingly, the Indian retail giants also welcomed the decision.

Kishore Biyani, Founder and Chief Executive of Indias largest retailer Future Group, agreedto the win-win situation for everyone analogy as Indian farmers, traders and small and medium-sized enterprises are set to benefit from trade and expanded business opportunities.

Raj Jain, head of Bharti-Walmart India, saidthey welcome the Indian government’s decision. “We have a good relationship with Bharti in the back-end. It is only natural that we will carry this to the front-end, he toldThe Economic Times. The US retail giant aims to use its existing supply chain set up almost a decade ago in India and also get access to Bhartis Easy Day stores.

CHALLENGERS

While billionaires and the middle class have all the reasons to benefit from the Indian government’s decision, the working class is not so happy about the future prospects. Indian Traders Association (CAIT) has called for a nation-wide strike on 1 December to protest the government’s decision. Considered to be the watershed moment in India’s consumer history, many people have expressed concerns that opening up of retail markets will eventually lead to the complicated situation Indian telecom industry is facing today which is marred by scandals and multinational oligopolies.

Economists believe opening up of more sectors of the massive Indian consumer market is on cards given the lure of billions of dollars worth foreign direct investment and taxation.

GOOD, BAD AND UGLY

The government’s latest decision has provoked a debate with opinions ranging from welcoming the multinationals to India to accusations of selling the soil for dirt cheap prices.

Proponents insist the country needs a competitive market where quality goes up while prices come down at a time when inflation is hovering well above the 10 per cent figure. They also hope that the decision will help India’s FDI grow which dropped drastically this year to US$29.4 bn, a 28 per cent decrease.

Wal-Mart’s McMillon insisted allowing companies like Wal-Mart leads to increase in creation of jobs through increase in farm productivity and income. However, critics of neo-liberalisation policies claim aggressive expansion of supermarkets force millions of family-run shops into closure. Government says a clause in the agreement ensures that a foreign retailer will only operate in cities with population of over a million souls. Recent history only suggests that multinational companies get away with rules and regulations due to corruption and inefficiency among law enforcement authorities.

Sources: Economist, FirstPost, Economic Times

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