India’s foreign retailer plans come under fire
28 November 2011 10:28
India's new open-door policy for foreign retailers is stirring a backlash from some state governments who fear the move will be unpopular with smaller traders and shop owners in their constituencies.
The new regulations do not require parliamentary approval but, to set up shop, foreign retailers such as Wal-Mart and Tesco must get a green light from the government of the state where they want to do business.
Over the weekend, five state leaders made clear their unwillingness to let foreign companies in. The Indian parliament adjourned amid uproar over the issue and Communist Party-controlled trade unions have pledged to strike on December 1st.
The central government has taken out advertisements to quell critics, championing the new rules as a way to make food cheaper for everyone, eliminate waste which claims up to 40% of all fresh produce, and create millions of jobs.
The leaders of the states of Tamil Nadu, Uttar Pradesh, Kerala, Orissa and West Bengal have all publicly opposed the ruling Congress Party's move to let foreign retailers own up to 51% of supermarkets and 100% of single-brand stores, according to the Press Trust of India.
India's main opposition BJP party as well as the Congress Party's coalition ally, the Trinamool Congress, have also voiced opposition.
India's Hindustan Times newspaper calculated that 28 of the 53 cities where retailers could set up under the new rules are in states controlled by political parties opposed to the regulations.
Some say the wave of opposition will not scupper the changes, which foreign retailers have been pushing for a decade.
"There are enough states which would be positively inclined," said Saloni Nangia, head of retail and consumer products at Technopak Advisors, a New Delhi-based consulting company.
"Retailers will take some time before they start implementing. By then things would settle down."
Other analysts say global economic uncertainty may prove a stronger immediate disincentive.
The new rules would allow big retailers such as Wal-Mart to set up supermarkets in India's major cities and is expected to herald the arrival of companies like Swedish retailer Ikea, which has been keen to enter India for years, but only if it can maintain control of its operations.
Tamil Nadu's chief minister J Jayalalithaa said in a letter to Prime Minister Manmohan Singh yesterday that she would not let retailers into her state, describing the central government's move as a "wrong decision, taken under pressure from a few retail giants starved for capital infusion for their future survival", according to the Press Trust of India.
Mayawati, the fiery leader of Uttar Pradesh, said foreign investment in retail would make her state "bankrupt". She is locked in a battle with the Congress Party over upcoming state elections.
The chief minister of Kerala, which is controlled by the Congress Party, also came out against the changes.
Narendra Modi, the chief minister of Gujarat, has been quiet on the issue. Although he is renowned for being business-friendly and actively seeking foreign investment, a major constituency of his BJP party are the small traders which many fear will be put out of business.
The government tried to design the new retail policy so that the price of entry into India's 1.2 billion-strong consumer market would be improving the nation's food distribution and bolstering local businesses.
Under the new regulations, retailers must put at least half their investment into back-end infrastructure such as refrigerated storage, with 30% of procurement from small companies, and they can only open outlets in cities with a population of more than one million.
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