India approved allowing overseas companies to own as much as 51 percent of retailers selling more than one brand, paving the way for global companies such as Wal- Mart Stores Inc. (WMT) and Tesco Plc (TSCO) to own stores.
Trade Minister Anand Sharma told reporters after a cabinet meeting yesterday that he will make a statement on the government’s rationale for opening multibrand retail to foreign investment in parliament today. Specific conditions linked to the approval weren’t immediately known.
Wal-Mart and Carrefour SA (CA) have been seeking to enter the world’s second-most populous nation to tap a market expected to double to $785 billion by 2015 from $396 billion this year, according to Business Monitor International. Organized stores account for about 5 percent of India’s retail market, according to the Associated Chambers of Commerce and Industry of India.
“Foreign retailers must be licking their lips at this opportunity,” said Narayanan Ramaswamy, executive director at KPMG India, which advises retail companies. “It has to be one of the biggest opportunities in the world right now.”
Overseas retailers such as Wal-Mart and Carrefour, the world’s two biggest, may be required to invest a minimum of $100 million in India, according to a government official familiar with the talks. At least half of the investment must be in back- end infrastructure and stores will be allowed only in cities with a population of 1 million or more, the official, who declined to be identified citing departmental policy, said on Nov. 23.
Retailers Gain
Indian retailers gained in Mumbai trading yesterday before the cabinet meeting as overseas companies will need local partners to set up operations in the South Asian nation. Pantaloon Retail India Ltd. (PF), the country’s largest chain by market value, jumped 13 percent to 201.20 rupees, the most in more than two years. Shoppers Stop Ltd. (SHOP) advanced 5.5 percent and Trent Ltd. (TRENT), which has a franchise agreement with Tesco, rose 1.1 percent.
“It can be a game changer for us,” Kishore Biyani, the founder and managing director of Pantaloon, said in a Nov. 18 phone interview when asked about the possibility of the rules being relaxed. “We’ll get opportunities to align with various businesses with stronger partners.”
India also allowed companies that sell a single brand to own 100 percent of their operations from 51 percent earlier, Food Minister K.V. Thomas said yesterday.
‘Important First Step’
India permitted foreign retailers to own wholesale stores in 1997. Wal-Mart has set up 14 such stores in India through a joint venture with billionaire Sunil Bharti Mittal’s Bharti Enterprises to gain a foothold in the country, while Metro AG operates six wholesale stores. Carrefour opened its first outlet in December.
The government’s latest move is “an important first step,” Wal-Mart Asia President Scott Price said in a statement. The retailer looks forward to “playing a key role” in India, he said.
Carrefour said in a statement that it will monitor for the completion of the regulations, which may help India’s fight against food inflation.
The decision to permit foreign retailers came as Prime Minister Manmohan Singh’s parliamentary ally the Trinamool Congress opposed the move. The main federal opposition Bharatiya Janata Party was also against the decision.
Cutting Waste
“Small and medium retailers, which employ a large number people, will be affected,” Arun Jaitley, a BJP leader, said in New Delhi yesterday. “We oppose it completely.”
Policy makers have been debating approving the idea for at least the past seven years.
Raj Jain, president of Wal-Mart India, said in April 2010 the company can help reduce prices by improving supply chain and infrastructure to cut waste. About 40 percent of India’s fruit and vegetables rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to government estimates.
Bharti-Walmart, the local joint venture, buys fresh produce directly from about 1,200 farmers in Punjab and helps them improve their yield through better farming practices, Jain said in May.
To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net
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