BETKO NEWS

BETKO FRESH PRODUCE OFFERS THE HIGHEST QUALITY FRUIT

Fundamental change ahead for Indian retail sector

27 November 2011

News that the Indian government has decided to ease restrictions on foreign investment in its huge US$450m retail sector, could signal the start of much change in the country

International news agencies report that the Indian government has voted to allow foreign companies to own a controlling interest in multi-brand retail outlets.

According to Reuters the move was the country’s biggest reform in years and should provide greatly needed investment in Asia’s third largest economy.

Asiafruit Newsline reports that at present independent ‘mom and pop’ style businesses account for as much as 95 per cent of sales in the multi-brand retail sector, so provided foreign retailers invest heavily in the sector, the government’s announcement looks set to transform the country’s retail landscape.

While local retailers have operated supermarkets in the country for years they have suffered from a lack of funding, expertise, and poor infrastructure, says Reuters.

This means, as many South Africans who travelled to the country will confirm, that effective cold chain transportation is almost non-existent and bottlenecks are a constant problem.

Waste due to logistics problems result in losses of up to 40 per cent. Local media has reported regulations will likely be included in legislation to ensure foreign companies source locally and invest heavily in back-end infrastructure.

This, says analysts, may also to some degree scare off investors, depending on what the conditions will be for investors getting involved in the country’s retail sector.

In the past retailers such as Walmart, Carrefour and Tesco have lobbied for restrictions to be eased and see huge opportunity for growth in 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.”

From a South African pointy of view the biggest problem with expansion into the Indian market is the high tariff barriers applying to the importation of South African fresh produce. Industry leaders have gone on record saying that South African growers cannot afford to trade into this market at current tariff import levels. So far attempts to get these tariffs reduced have been unsuccessful.
 

Reuters quoted Moody’s senior retail analyst Charles O’Shea as saying with a population of 1.2bn India is a place where the big players, such as Walmart, need to be.
 

While many may be pleased with the latest developments, it must be noted that the new regulations have been opposed by many people in India who are concerned about its impact on local retailers.
 

This could increase anger towards the ruling party ahead of state polls next year that will set the tone for general election in 2014.
 

Reuters reported slowing growth in the economy, a poorly valued currency, and high inflation might have forced the government to ease restriction on FDI. 
 

"Manmohan Singh, after all the scams and the impression of government paralysis, has realized it's time to take some bold steps. This is a very bold step that will please the middle class," said political analyst Amulya Ganguli.
 

News Archive