Will global supermarkets help India?
- 17 September 2012
- From the section India
India has cleared a controversial plan to open up its lucrative retail sector to global supermarket chains. Business analyst Alam Srinivas answers a few key questions.
What does the government's decision mean?
Multi-national retailers such as like Wal-Mart, Carrefour and Tesco will now be able to buy up to a 51% stake in India's multi-brand retailers.
This decision allows these chains to sell directly to Indian consumers.
Analysts say the government has reintroduced the measure in an effort to revive a flagging economy.
How will the decision work?
The implementation of the policy has been left entirely to the states, suggesting that some opposed to reform could opt out.
Other conditions have also been imposed on groups wanting to invest in India.
For example, companies will have to invest at least $100m (£67m), open outlets only in towns with a population of more than one million and source at least 30% of produce from India, according to reports.
Will farmers benefit?
Estimates differ, but a few experts say that a third of the perishable vegetables and fruits produced each year are wasted as India lacks adequate storage facilities.
Once Wal-Mart, Tesco and others enter the market, they are likely to invest a combined $8-10bn over the next three to five years in back-end operations such as transportation and cold storage.
This will reduce the rotting of food. It will also help the farmers to sell more.
Supporters of the move say that with their own farm-to-market distribution networks, global supermarket chains will get rid of exploitative middlemen and pay higher prices directly to the farmers.
Critics say big retail will not help farmers.
They point out that most large Indian retailers, who have been in business for years, have not invested much in cold storage, and most of them buy directly from the middlemen, or the wholesale markets.
In an article in The Hindu, Devinder Sharma, an agriculture analyst, wrote that "even in the US, big retail has not helped farmers" as it "brings in a new battery of middlemen … who walk away with the profits."
Will consumers pay lower prices?
Supporters of the move say that the entry of foreign supermarkets may help in lowering prices for consumers.
With a corporate mission of "saving people money to help them live better", annual sales of almost $450bn and over 10,000 stores, Wal-Mart, for example, sells at rock-bottom prices.
But in India, the benefits may accrue to middle and upper-classes.
Arvind Singal of Technopak, a retail consulting firm, has estimated that modern, or organised, retail comprises 4.2% of the overall market.
Economists like Rajiv Kumar feel that this share can rise to 17% over the next two decades, and constitute just over $150bn of the $900bn retail market in 2032.
Logically, foreign investors will aim to open supermarkets only in large cities and towns, where sizeable sections will have high consumption power.
The trend will be accentuated as the current government policy forces the global chains to set up outlets in cities with a million-plus population.
How will retail politics play out?
This is the second time in 10 months that the Congress-led ruling coalition has tried to open up the retail market for foreign investors.
In November 2011, the initiative on multi-brand stores was put in cold storage because of the opposition from some of its political allies, who continue to protest against it.
Many of the larger states like Uttar Pradesh, Madhya Pradesh, West Bengal, Bihar and Orissa, which are ruled by opposition parties and Congress allies who are against organised retail, have refused to entertain proposals by the global retailers.
Only nine states, including several smaller states like Delhi, Indian-administered Kashmir, Assam, Manipur and Uttarakhand, support the move.