By contributor Sean Carey
Last week it looked like U.S. and European supermarket chains like Wal-Mart, Tesco and Carrefour would soon be allowed to enter the $396 billion retail market in India. The fast-growing country, Asia’s third-largest economy after China and Japan, has a population of 1.2 billion, which makes it the world’s second most populous nation.
The Indian retail market is expanding at an unprecedented rate and is expected to more than double in size to $796 billion (£514 billion) by 2015 as Western-style consumerism gains momentum.
The current market is largely controlled by a small family-owned stores, street vendors and hawkers. But under ever-increasing political pressure as economic growth slows, the Indian Government led by Cambridge-educated economist Prime Minister Manmohan Singh, hoped that opening up the retail market to competition would reduce food price inflation as well as indicate that the country welcomed more foreign direct investment.
The Indian Government’s decision, which did not require parliamentary approval, signalled that it would not be a free ride for foreign companies. In return for a 51 percent stake in “multi-brand retailers” and 100 percent ownership of “single-brand stores” like Nike they would be expected to contribute to the country’s infrastructure, and source at least 30 percent of supplies from small and medium-sized Indian companies. Another condition highlighted in the proposal was that foreign companies would only be able to open stores in cities of more than 1 million people that have an “organised retail sector.”
U.K. retail giant Tesco said the announcement was good news but that it was awaiting “further details on any conditions” before making any move.
Concerns about the impact of the initiative on the traditional retail system were quick to appear, however. An editorial in the Financial Times said: “A consolidated retail sector would require consolidated agriculture to supply it. Such changes could cost millions of Indians their livelihoods. With no functioning welfare system that is a serious worry.”
On Monday, two coalition allies of the Congress Party, which governs with a slender parliamentary majority, announced that they could not back the proposed change in policy towards the retail sector. One ally, M. Karunanidhi, leader of the Dravida Munnettra Kazhagam party in the southern state of Tamil Nadu said: “It is dangerous to allow foreign direct investment in retail trade as it will affect hundreds of thousands of small traders as well as the poor and middle-class consumers. It will also be a cause for economic decline for our country.”
On the same day, hundreds protested at the prospect of international retail giants arriving in their country outside a Carrefour wholesale outlet in the northern city of Jaipur.
On Tuesday, after Parliament was adjourned for the third day as the BJP opposition and its allies demanded that the initiative should be abandoned, the Prime Minister used the platform of the Youth Congress party convention in New Delhi to defend his plans. “We have not taken this decision in haste, but after a lot of consideration,” he said. “It is our firm conviction that the decision will benefit the country.”
The Hindu reported that the Prime Minister has offered an olive branch to state governments. “State governments that are not convinced of its usefulness have the means to prevent foreign participation in retail businesses in their States,” he declared.
Commentators think that the most likely option is that the Prime Minister will refer the initiative to a ministerial committee, “a traditional way of Congress kicking problems into the grass.”
The Federation of Indian Chambers of Commerce and Industry has announced a nationwide strike on Thursday to protest against the proposed changes in the retail sector.
The lesson? It is surely that in the world’s largest democracy it is not a good idea to force through measures which have not been debated and do not command popular support. This is a pity since some reform of the retail market in India is urgently needed as it is estimated that around 40 percent of food and vegetable rots before coming to market.