Retail remains one of the sectors where the government agenda to liber alize seems to be on a temporary hold. Given the intense lobbying from domestic retail chains and the likely political fallout of further opening up the sector for FDI, the issue triggers strong emotions across the retail value chain.
The first two contrasting views sum up the scenario on retail FDI in India. Caught up in this imbroglio is the Indian government, which depends on the support of communist parties for its survival. These parties have been vociferous in opposing the opening up of the Indian economy to global conglomerates.
Traditionally, Indian retailing has been dominated by the unorganized sector. During the past decade, organized retail chains with national presence have emerged. Simultaneously, there has been proliferation of retail formats. The past five years saw malls, hypermarkets and departmental stores springing up in many cities and towns across the country. Supermarket chains have also expanded their geographic presence and it is not uncommon to have competing supermarket outlets in the vicinity of each other in many metros. Rapid scaling up seems to be the order of the day for organized retail chains. Some of these chains, promoted by leading corporate houses with deep pockets, have altered the retail landscape significantly across the country. Independent and aggressive retail players, too, have carved out a space for themselves. Exhibit I tells the tale of the booming Indian retail scene. In the words of Amitabh Taneja, Chief Convener, India Retail Forum, “The organized retail in India has indeed gained top speed and is now on the verge of take-off”.
As part of economic liberalization initiated in the early nineties, the retail sector too was opened up. Way back in 1993, the Indian government allowed FDI in retail, restricting it to “cash and carry” operations. In other words, foreign entrants could only sell to retailers, but not to customers directly. However, within three years, the policy was reversed. It was not until 2000 that the first foreign player, Metro of Germany, was given the green signal to open stores under the “cash and carry” model. Metro’s operations in India kicked off only in 2003, with a store spread over 10,000 sq.m. in Bangalore. Presently, it operates three stores in India. As of now, the rules specify an upper limit of 51% for single-brand retail operations by foreign players and 100% for “cash and carry” operators. What is causing heated debate of late is the possibility of opening up the domestic retail operations (i.e. sales to customers) to foreign retailers. Raising high emotions on both sides, this is passionately debated. Some of the issues involved |
