Affairs

Retail

India gears up to overhaul its outdated retail industry— New Delhi

Preface

With global retailers turning the screws and consumers demanding more choice, the Indian government is finally considering removing restrictions on supermarket chains.

Development, Food, Production

21 July 2011

With global retailers turning the screws and consumers demanding more choice, the Indian government is finally considering removing restrictions on supermarket chains, potentially paving the way for an overhaul of India’s food networks. This is good news for a country where, despite millions of hungry people, large amounts of produce goes to waste.

India may have a healthy growth rate, an expanding economy and ever-growing number of millionaires and billionaires – but food retail largely remains medieval, dominated by small, family-run businesses where customers must select from a limited range of dusty essential groceries mostly kept behind a counter.

But with a retail market worth €301bn, many foreign companies are angling to get a slice. Walmart, Tesco and Carrefour all have a presence in India, but can’t operate under their original brands due to severely protectionist Foreign Direct Investment (FDI) laws, instead having to form joint ventures with Indian partners.

“They have all entered through cash-and-carry [wholesale], given that FDI is allowed through this route,” says Anand Ramanathan, a retail expert with KPMG India. “The Indian partner brands tend to look after the front end, while the foreign brand looks after the back end.”

Walmart operates in India as Bharti Walmart, with stores mainly in Punjab state, while Tesco is in partnership with Trent, the retail arm of corporate giant Tata.

In recent months, however, there have been encouraging signs that the Indian government is likely to deregulate the retail sector. Earlier in the year, a committee formed to explore deregulation found in favour of it, and the commerce and industry minister Jyotiraditiya Scinda said ministers were preparing to present a report to cabinet.

But authorities are aware that any such move would inevitably lead to widespread social tension as the chains will put many small grocery stores out of business, although some say there is enough space for both to exist.

“There are indications they will [deregulate] in a phased manner to minimise social unrest,” says Ramanathan. “What’s not clear is when they will do it. It could be in three months, six months or more than a year.”

There are enormous benefits to India in doing this, particularly in sorting out supply chain and logistics issues. Currently up to 60 per cent of crops can go to waste, rotting before even reaching the consumer – thanks to a lack of refrigeration and also because produce can change hands up to 12 times before reaching the store shelves.

“The primary driver for allowing in foreign chains is to cut out wastage and inefficiency, as they can deal directly with the farmer,” says Ramanathan. Procuring produce from the source will also increase margins for India’s embattled farmers.

While there will be an inevitable outcry over the potential death of small family-owned grocery stores, there is no doubt that far more people are set to reap the benefits from the entry of foreign majors.

Monocle 24

× The Globalist

  • This one-hour show airs at 06.00 London time and looks ahead to events that will shape the day in Europe, and beyond, with a special focus on Turkey and the Gulf.
Loading

0:00:00 0:01:00

Drag me