India has opened its supermarket sector to foreign retailers such as Wal-Mart Stores Inc, pushing through a major reform aimed at attracting foreign capital and potentially easing stubbornly high inflation.
The policy comes with provisos, which some analysts say could hamper firms hoping to set up shop in the world’s second-most populous country.
Sourcing from Small Companies
Retailers will have to source almost a third of their manufactured and processed goods from industries with a total plant and machinery investment of less than $1 million. Supermarket chains will certify compliance with this rule themselves.
The Industry Secretary said the government could not require companies source part of their produce from India as this would violate World Trade Organization guidelines.
A similar rule will also apply to stores which only sell their own brand products. These companies, which can wholly own the stores they run in India, will have to buy produce from village and cottage industry artisans.
The government will reserve the first right to procure food produce from farmers before companies do, in order to provide stocks for its food subsidy schemes for poor households.
Foreign retailers will have to invest a minimum of $100 million in India, at least half of which must be ploughed into so-called ‘back-end’ infrastructure, such as warehousing and cold storage facilities.
India’s industry secretary told Reuters there was no specified time frame for how quickly the $100 million would have to be invested.
The aim is to meet one of the key justifications for opening the supermarket sector to foreign players—revamping the country’s crumbling infrastructure and unclogging supply bottlenecks.
As much as 40 percent of India’s fruit and vegetable production is wasted because of poor networks and a lack of cold storage, with even meat sold from open air stalls on sweltering streets.
The bottlenecks fan inflation, which has remained at more than 9 percent for nearly a year and prompted a slew of rate hikes by the Reserve Bank of India.
Policymakers argue opening the sector will help ease prices for a country where hundreds of millions of people live in dire poverty, and who have taken to the streets in anger.
Foreign retailers will initially only be allowed to set up shop in cities with a population of more than 1 million.
Critics of the new retail policy, including from opposition parties and smaller, domestic traders, say opening the doors to the likes of Wal-Mart will wipe out the country’s small, family-run neighborhood stores and trigger mass unemployment.
By restricting foreign firms to cities, the government hopes the supermarkets will become accessible to the country’s swelling middle class, while protecting the livelihoods of shopkeepers in smaller towns and rural areas for as long as possible. (Reuters)