Will global supermarkets help 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?

Consumers are expected to get discounts

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.

 

There have been protests against the move

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.

India strike over supermarket reforms

Opposition parties and trade unions in India are staging a day-long strike over plans to open the country's retail sector to global supermarket chains.

Calcutta and Bangalore were virtually shut down, but the response in other parts of the country was mixed.
The reforms, which ministers say are needed to revive the economy, were formally introduced on Thursday.
But small shops fear they will be put out of business and many people are angry at recent fuel price rises.
Earlier in the week a key ally left the ruling coalition in protest, although its majority in parliament is not at immediate risk.

Continue reading the main story

Analysis

Andrew North BBC News, Delhi

Shutters were down on shops in old Delhi. Roads were closed.
Outside the historic Red Fort, protesters bussed in by the opposition BJP set alight an effigy of the prime minister, cheering as they stamped on the burning remains.
But in the end it was a small strike over Mr Singh's plans to allow in foreign supermarkets, with a similarly patchy turnout elsewhere.
The government is not off the hook though.
People haven't forgotten issues like corruption, which they say has got much worse under the Congress Party-led coalition.
And despite planned cuts in fuel subsidies, it's still not clear if India can escape a credit rating downgrade.

The Congress-led government attempted to introduce the retail reforms last year, but backed down in the face of opposition.

Thursday's nationwide strike, called by the main opposition Bharatiya Janata Party (BJP), its allies and Communist parties, has shut down schools, businesses and public transport in many cities.
TV channels showed protests taking place in the cities of Patna, Allahabad and Varanasi in northern India.
Most businesses were shut in the eastern city of Calcutta and public transport was disrupted, reports said, with workers also blocking railways in Uttar Pradesh and Bihar states.
The southern state of Karnataka, which is governed by the BJP, was shut down in response to the strike call, with buses off the roads and schools, hotels and businesses closed. The state capital, Bangalore - home to hundreds of IT companies including multinationals like IBM and Microsoft - was completely shut down.
"We have asked our employees to stay back at home. We will instead work on Saturday," an official of Infosys, one of India's leading software companies, said.
"The fear factor is the reason for the closure," a spokesperson for another multinational company told the BBC.

Continue reading the main story

“Start Quote

An intriguing lack of political consensus and informed public debate... has scuppered attempts at key reforms”

Soutik Biswas India correspondent

• Read more from Soutik

Much of the capital was operating normally on Thursday, BBC reporters said. There was a similar picture in the financial capital, Mumbai.

The BBC's Soutik Biswas in Delhi says this may well signal that politically-led mass protests over a single issue no longer have the ability to shut down the entire nation.
It could also reflect the fact that the merits and demerits of such retail reforms are distant from ordinary members of the public, our correspondent says.
Job fears The government's plan is aimed at reviving a flagging economy, as well as avoiding the threat of a downgrade in India's credit rating.

But many small shops fear for the future. Delhi-based trader, Deepak Sethi, said shopkeepers would lose business if foreign supermarkets were allowed into India.
"Multinational companies will destroy the economic and social fabric of the country and will adversely impact traders, transporters, farmers and other sections of retail trade," Praveen Khandelwal, the head of the group, was quoted as saying by AFP news agency.
"These big companies can attract customers by selling at cost prices. That means people here are going to lose jobs. Shops like ours will be hit the most."
The Trinamool Congress party, a key ally of the ruling coalition, has said it will pull out of the government and withdraw support in parliament. Its six ministers are to resign on Friday.

Small shops fear they will be put out of business

The government also announced a 14% rise in the price of diesel, which is heavily subsidised in India. That move has also prompted great anger across the country.
Under the government's proposal, global firms - such as Walmart and Tesco - will be able to buy up to a 51% stake in multi-brand retailers in India.
Multinational retailers already have outlets in India, but at present they can sell only to smaller retailers. This decision allows them to sell directly to Indian consumers.
Indian Prime Minister Manmohan Singh has said the reforms would "help strengthen our growth process and generate employment in these difficult times".

India strike over supermarket reforms

Opposition parties and trade unions in India are staging a day-long strike over plans to open the country's retail sector to global supermarket chains.

Calcutta and Bangalore were virtually shut down, but the response in other parts of the country was mixed.
The reforms, which ministers say are needed to revive the economy, were formally introduced on Thursday.
But small shops fear they will be put out of business and many people are angry at recent fuel price rises.
Earlier in the week a key ally left the ruling coalition in protest, although its majority in parliament is not at immediate risk.

Continue reading the main story

Analysis

Andrew North BBC News, Delhi

Shutters were down on shops in old Delhi. Roads were closed.
Outside the historic Red Fort, protesters bussed in by the opposition BJP set alight an effigy of the prime minister, cheering as they stamped on the burning remains.
But in the end it was a small strike over Mr Singh's plans to allow in foreign supermarkets, with a similarly patchy turnout elsewhere.
The government is not off the hook though.
People haven't forgotten issues like corruption, which they say has got much worse under the Congress Party-led coalition.
And despite planned cuts in fuel subsidies, it's still not clear if India can escape a credit rating downgrade.

The Congress-led government attempted to introduce the retail reforms last year, but backed down in the face of opposition.

Thursday's nationwide strike, called by the main opposition Bharatiya Janata Party (BJP), its allies and Communist parties, has shut down schools, businesses and public transport in many cities.
TV channels showed protests taking place in the cities of Patna, Allahabad and Varanasi in northern India.
Most businesses were shut in the eastern city of Calcutta and public transport was disrupted, reports said, with workers also blocking railways in Uttar Pradesh and Bihar states.
The southern state of Karnataka, which is governed by the BJP, was shut down in response to the strike call, with buses off the roads and schools, hotels and businesses closed. The state capital, Bangalore - home to hundreds of IT companies including multinationals like IBM and Microsoft - was completely shut down.
"We have asked our employees to stay back at home. We will instead work on Saturday," an official of Infosys, one of India's leading software companies, said.
"The fear factor is the reason for the closure," a spokesperson for another multinational company told the BBC.

Continue reading the main story

“Start Quote

An intriguing lack of political consensus and informed public debate... has scuppered attempts at key reforms”

Soutik Biswas India correspondent

• Read more from Soutik

Much of the capital was operating normally on Thursday, BBC reporters said. There was a similar picture in the financial capital, Mumbai.

The BBC's Soutik Biswas in Delhi says this may well signal that politically-led mass protests over a single issue no longer have the ability to shut down the entire nation.
It could also reflect the fact that the merits and demerits of such retail reforms are distant from ordinary members of the public, our correspondent says.
Job fears The government's plan is aimed at reviving a flagging economy, as well as avoiding the threat of a downgrade in India's credit rating.

But many small shops fear for the future. Delhi-based trader, Deepak Sethi, said shopkeepers would lose business if foreign supermarkets were allowed into India.
"Multinational companies will destroy the economic and social fabric of the country and will adversely impact traders, transporters, farmers and other sections of retail trade," Praveen Khandelwal, the head of the group, was quoted as saying by AFP news agency.
"These big companies can attract customers by selling at cost prices. That means people here are going to lose jobs. Shops like ours will be hit the most."
The Trinamool Congress party, a key ally of the ruling coalition, has said it will pull out of the government and withdraw support in parliament. Its six ministers are to resign on Friday.

Small shops fear they will be put out of business

The government also announced a 14% rise in the price of diesel, which is heavily subsidised in India. That move has also prompted great anger across the country.
Under the government's proposal, global firms - such as Walmart and Tesco - will be able to buy up to a 51% stake in multi-brand retailers in India.
Multinational retailers already have outlets in India, but at present they can sell only to smaller retailers. This decision allows them to sell directly to Indian consumers.
Indian Prime Minister Manmohan Singh has said the reforms would "help strengthen our growth process and generate employment in these difficult times".