By Matthias Williams
NEW DELHI, Sept 14 (Reuters) – India opened its retail
sector to foreign supermarkets on Friday, a major economic
reform that has been stalled for months by political gridlock
and came as part of a package of measures aimed at reviving
growth.
The policy comes with provisos which, some analysts said,
could hamper firms hoping to set up shop in the world’s
second-most populous country.
Following are key aspects of the policy:
STATES TO DECIDE ON IMPLEMENTATION
Individual state governments will decide whether to allow
foreign supermarket chains to enter. The Congress party-led
government hopes this will take the sting out of opposition from
regional parties who say the policy will destroy jobs.
Opponents of the reform include Mamata Banerjee, the chief
minister of West Bengal state and the most powerful ally in
Prime Minister Manmohan Singh’s government.
SOURCING FROM SMALL COMPANIES
Foreign 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 themselves.
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.
MINIMUM INVESTMENTS
Foreign retailers will have to invest a minimum of $100
million, and put at least half of their total investment into
so-called ‘back-end’ infrastructure, such as warehousing and
cold storage facilities. This requirement has to be met within
three years of a retailer setting up shop.
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 bottlenecks.
The bottlenecks fan inflation, which has proved a
major headache for the government and the Reserve Bank of India.
Policymakers argue opening the sector will help ease prices
for a country where hundreds of millions live in dire poverty.
BIG CITIES
Foreign retailers will only be allowed to set up shop in
cities with a population of more than 1 million. In states where
there are no cities with such a big population, individual state
governments can choose where to allow foreign chains to open.
Critics of the new retail policy, including from opposition
parties and domestic traders, say opening the doors to the likes
of Wal-Mart will wipe out the country’s small, family-run
neighbourhood 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.
(Reporting by Matthias Williams)
