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India Lets in Wal-Mart, With Conditions
The Indian government's decision Friday to let big department stores like Wal-Mart Stores into the country could dramatically impact everything from the country's food chain to its roads.
A sizable portion, some estimate as much as 40 percent, of the food Indian farmers grow rots before it gets to a consumer, and giant stockpiles of grain and other essentials often spoil before they are distributed.
The government has laid out some very specific conditions, even as it has opened the door to Wal-Mart and others, designed to protect the livelihood of some of India's tens of millions of small shopkeepers. They include:
-Retail stores can only be opened in states which have agreed to the policy.
-Retail stores can only be set up in urban areas with populations of more than a million (India has more than 50 of them), and must provide “transport connectivity and parking.†Stores can be set up in states without a city of more than a million, if the state approves the policy, in the city of the store's choice “preferably the largest.â€
-Brands much make a minimum of $100 million in investment, with half that in rural areas.
-At least 50 percent of the total foreign direct investment brought in should be made in “`back-end infrastructure,†which does not include building stores or any land costs. It does include: “investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house and agriculture market produce infrastructure.â€
-Retail chains are expected to source at least 30 percent of the goods they sell from Indian smal l and mid-sized businesses, or set up their own manufacturing facilities in India.
The government's statement concludes:
“The decision would benefit stakeholders across the entire span of the supply chain. Farmers stand to benefit from the significant reduction in post-harvest losses, expected to result from the strengthening of the back-end infrastructure and enable the farmers to obtain a remunerative price for their produce.
Small manufacturers will benefit from the conditionality requiring at least 30 percent procurement from Indian small industries, as this would enable them to get integrated with global retail chains. This, in turn, will enhance their capacity to export products from India.â€
India Opens Door to Foreign Investment
India ushered in the biggest economic reforms in two decades on Friday, allowing big foreign retailers like Wal-Mart, foreign broadcasters and foreign airlines to invest in the country.
“On single brand, the cabinet has today taken the decision, 100 percent FDI in single brand has been notified,â€said Anand Sharma, the minister for commerce and industry, during a press conference in New Delhi. “The objective of the policy was to attract investment, create local manufacturing and employment,†he said.
Mr. Sharma noted that the implementation of the new policy has been left entirely to the “decision and discretion†of the state governments.
The changes were greeted with enthusi asm by industry and analysts:
Chandrajit Banerjee, Director General, CII: “Coming a day after the fuel price announcements, the decision of the Government to ease FDI norms in an array of sectors like Multi Brand Retail, Civil Aviation, Power Trading Exchanges and Broadcasting is a tremendous boost not only to the sectors in question, but is a huge mood lifter. The despondency that had set in owing to absence of policy announcements would certainly be addressed to some extent. Global and domestic perceptions would also change and CII is hopeful that the rating agencies would take due note of these announcements as well.
“The move to increase FDI caps in in these sectorsm will help mobilise capital into these sectors, which the country needs and would also improve the current account deficit situation, which was becoming alarming. Purely, from a policy point of view as well, yesterday's announcements followed by today's are an indi cation that reforms are back.â€
Rajan Bharti Mittal, Vice-Chairman and Managing Director of Bharti Enterprises: “This is a landmark decision in India's economic reforms process. Development of organized retail in India will bring immense benefits to stakeholders across the value chain â€" from farmers to small manufacturers and above all to consumers. Enhanced investment in the sector can further the cause of employment, particularly amongst youth. In addition, this decision will open the doors for much needed technology and investments to develop the entire retail ecosystem in the country. Bharti Walmart's Cash & Carry venture is already sourcing fresh produce directly from thousands of farmers as well as other merchandise from local manufacturers, thereby adding to the local economy's growth and delivering immense value benefit to its customers such as kirana stores and other institutions.â€
Tarun Das, former director general of CII: “The reform agenda is back on track.The fuel prices were raised to bring down the deficit. If the deficit is down then the Reserve Bank of India can bring down the interest rates. If the interest rates are down, people will borrow more money and invest more money. That will improve the growth. So the over all impact on the economy will be very positive. Once the domestic economy improves, it will increase the confidence of foreign investor. The FDI in retail and aviation will bring more money, better technology and improved managerial skills. The Prime Minister is for reforms and now he has his team in place. So we will see more reforms in coming months. With high interest rates the burden of borrowing money is too much for the co-borrower. So all these reforms will start a chain reaction. I am very happy that reform agenda is back. The past mistakes will be corrected.â€
Government\'s Rush to Reform Off to a Rocky Start
Political leaders across India have condemned the central government's decision to raise diesel prices, and protests are planned around the country.
Mamata Banerjee, chief minister of West Bengal and an ally of the governing Congress party, told journalists she was “astonished†by the decision, which was made without her input, and said there would be a protest rally Saturday. Jayalalitha Jayaram, chief minister of Tamil Nadu, blamed the government for not slowing the falling value of the rupee, which she said might have averted the need for a price increase.
The Samajwadi Party, another occasional ally of Congress, said it planned to hold a sit-in to protest the increase, and called the move “anti-people.†The Congress party's main opposition, the Bharatiya Janata Party, accused Congress of trying to “loot the common man†with the increase, and said it would not allow it.
Analysts and economists, on the other hand, approved of the decision, calling it a sign that the government was finally making tough decisions.
The price increase was the first in a series of changes the government is attempting in coming weeks to reduce the budget deficit and kick-start a slowing economy. The diesel price increase of 5 rupees per liter, or 14 percent, is the first in more than a year and brings prices in Delhi up to 47 rupees per liter. The government also said Thursday evening it would limit the number of subsidized cooking-gas cylinders to six per household.
Raising diesel prices is seen as one of the most politically sensitive of these changes, and the increase Thursday night was not anticipated even by some governmen t advisers.
Diesel remains a highly-subsidized fuel in India, and price increases particularly affect the country's farmers and truck drivers. “The price hike on diesel will break the backbone of the farmer,†an unnamed farmer from Haryana State told NDTV, a local television channel. “The diesel price increase will affect the use of tractor for ploughing our fields and use of pump for field irrigation.â€
But many of India's businesses and upper-class private homes also rely on diesel generators when the electricity fails, a common occurrence in some areas.
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