India invite to foreign retailers stirs backlash

By Erika Kinetz

Associated Press

Published: Monday, Nov. 28 2011 6:16 a.m. MST

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 won't scuttle 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.

Tamil Nadu's chief minister J. Jayalalithaa in a letter Sunday to Prime Minister Manmohan Singh said she wouldn't 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 silent on the issue. Though he is renowned for being business friendly and actively seeking foreign investment, a major constituency of his BJP party are the small traders and mom and pop shops that many fear will be put out of business if companies such as are allowed greater access.

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 percent of procurement from small companies, and they can only open outlets in cities with a population of more than 1 million.

Technopak says the new rules could attract $5 billion in investment over the next five years.

The work facing new arrivals is formidable. Besides navigating political uncertainty, they must develop supply chains from scratch, improve supplier efficiency, set up logistics in a nation which needs better roads, train an uncomprehending work force and find appropriate, affordable retail locations in urban centers.

Wal-Mart, Tesco, Carrefour and Germany's Metro may have an advantage over other foreign retailers if they decide to expand their India operations as they already have wholesale businesses in the country.

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