India is moving quickly on a plan to open its $450 billion retail sector to global players such as Wal-Mart, the country’s industry secretary said on Wednesday, in a sign the government may be pressing ahead with a key reform.
It is not the first time the government has vowed to speedily allow direct foreign investment in the Asian giant’s modern supermarkets. But concerns about job losses and wrangling over infrastructure investment have sparked worries the reform is on the backburner.
Foreign retailers such as Wal-Mart, Carrefour SA, Tesco Plc and Metro AG see India’s 1.2 billion population as one of the world’s last largely untapped markets.
“Please don’t ask me for a timeline, but we are proceeding very fast,” Industry Secretary R.P. Singh told Reuters in an interview. “It’s certainly not on the back burner.”
The move is seen by many in government as crucial to tame high food prices, but the plan has not yet been approved by the cabinet, with job-loss concerns ahead of state elections next year and a general election in 2014 slowing policy.
“In the short run there is a feeling that there will be some displacement of the local mom and pop stores,” Singh said. He said he believed supermarkets would be positive for job creation in the long run.
The government does not need parliament’s approval for the move, but is proceeding cautiously to avoid any possible fall-out, having faced mass protests over corruption and soaring prices in the past year.
The minister’s statement may boost hopes the reform will soon be brought to the cabinet for final approval, with stumbling blocks more about details like the actual FDI cap percentage rather than the principle of the reform itself.
Currently, up to 40 per cent of India’s harvests rot because of inadequate cold storage and supply bottlenecks, a situation some economists say foreign money in supermarkets will help resolve.
“The idea is that the multi-brand retail should be able to help us in addressing the infrastructure gap, so the back-end infrastructure is very important for us,” Singh said.
“They have to reinvent their model in India. They have to ensure that the value chain gaps are addressed, otherwise the benefits will not come to the consumer.”
He said concerns that such conditions would be too restrictive on companies were unfounded.
“Conditions are not such that they will reduce the viability of the global players here,” he said.
At the moment, India allows 51 per cent foreign investment in single-brand retailers and 100 per cent of wholesale operations.
A committee of top civil servants, of which Singh was a member, in July agreed to recommend to the cabinet allowing foreign firms to take a 51 per cent stake in multi-brand retail operations.
August Industrial Growth Weak
Turning to wider economic issues, Singh also said industrial growth was weak in August, as businesses held back investments because of high inflation and interest rates.
“Capacity addition is a big worry for us,” he said.
“Unless there is fresh capacity addition the growth will not be possible,” he said. “In the last… four years I would say the capacity addition has been very limited.
India’s industrial growth slumped to its weakest rate in nearly two years in July.