The Indian government last week granted permission to foreign multi-brand retailers to own up to a 51 percent stake in ventures in India, a move that could allow major global retailers like Walmart and Carrefour to open stores in the booming South Asian economy.
The move follows nearly a year after the concept was first formally proposed
by India Prime Minister Manmohan Singh's coalition government. It's a significant development, but one that stops short of allowing single-brand retailers, such as IKEA, to wholly own their stores, as had been initially proposed last November.
Still, the allowance of global multinationals into a long-protected Indian retail sector will be seen as progress from outside India, with particular benefits to be gleaned in the logistics and supply chain arenas. It has been theorized that allowing global retailers to use their brand names in India will induce them to invest more heavily in the country, with introduction of supply chain best practices and efficiency likely to follow.
Those fighting the new law argued that global retailers would overrun India's exceedingly fragmented retail structure, composed of hundreds of thousands of local mom-and-pop shops, and more recently, the development of nationwide retail chains.
India's Commerce and Industry Minister Anand Sharma noted the move to allow 51 percent foreign direct investment is an "enabling provision," meaning states that decide not to allow it could block foreign retailers. Sharma said Orissa, Bihar and West Bengal in eastern India were opposed to the provision, while Andhra Pradesh (home to Hyerabad), Haryana, Delhi and Maharashtra (home to Mumbai) were among those in favor.
The move could be a controversial one for Singh, a soft-spoken economist who has for two decades attempted to liberalize and modernize India's largely self-sufficient, but often insular economy. Diesel prices, which are subsidized by the government, have reached new highs, symbolizing rising inflation in a nation where a huge preponderance of citizens still wallow in poverty. Meanwhile, India's currency has weakened heavily against the dollar, a move that's helped exporters but hurt imports. - Eric Johnson