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Indian cabinet mulls retail revolution

Foreign multinationals have lobbied for years to be able to sell directly to consumers in the world’s second most populous nation, seeking access to a market estimated by consultancy McKinsey to be worth $450 billion a year.

“If this proposal gets through, consumers will have many more choices — it will truly be a borderless world in terms of products available,” Gibson Vedamani, board member of the Retailers Association of India, told AFP.

The proposal to relax the investment retail rules was set to be discussed at a cabinet meeting at 1230 GMT, a government official said.

Supporters see the opening up of the retail market to foreign players as a way to increase efficiency in the food supply chain, reducing prices and easing inflation, which is now close to 10 percent.

The full-scale entry of western retail chains could revamp storage and transport methods, reducing a chronic problem of food spoilage and ensuring fresher products are available.

Critics worry, however, that big, air-conditioned stores will drive small family-owned stores out of business, despite assurances from industry figures that the market is big enough to embrace all players.

“If they let in the multinationals, what will Indian shopkeepers do? They are big and they will undercut us in price,” said Chitan Vashisht, 27, who works at his cramped family-owned grocery store in New Delhi.

“I don’t want them to be allowed in.”

Even if the corruption-plagued and weakened cabinet led by Prime Minister Manmohan Singh approves the change, dissenting voices within his ruling coalition could scupper the plan.

The proposal is “a tool to kill the domestic (retail) industry,” said Murli Manohar Joshi, a leader of the main opposition Hindu nationalist Bharatiya Janata Party (BJP).

“If foreign direct investment in the retail sector is allowed, small traders will lose their jobs as their products will not be able to compete.”

Multi-brand foreign groups such as US-based Wal-Mart currently operate as wholesalers in India but are prevented from selling directly to the public. The vast majority of consumers currently shop at small local markets.

Wal-Mart and France’s Carrefour, which are seeking entry into India to grow their revenues in the face of saturated domestic markets, both declined to comment on Thursday ahead of the cabinet meeting.

Last year, Raj Jain, chief of Wal-Mart’s India operations, said the US giant could open hundreds of stores in the country after reform.

The policy change would enable multi-brand foreign groups to own 51-percent of partnerships with local firms.

The Congress-led central government may also raise the foreign investment cap to 100 percent from 51 percent at present for single brand retail operations such as Gucci, Nokia or Reebok.

India’s chain retail industry, which has been pushing hard for the changes, is cheering the government on from the sidelines, anticipating lucrative tie-ups with foreign firms.

“It will enable a lot of companies to get into India,” Vedamani, of the Retailers Association of India, told AFP.

To ease opposition, the cabinet was reported to be preparing to stipulate that foreign retailers must source a minimum percentage of products — expected to be around 30 percent — from small and medium-sized Indian businesses.