Indian Prime Minister Manmohan Singh addressed his nation Friday to defend his recent trade-policy decisions, which includes allowing some of the world’s largest retail companies to plant their logos in one of the world’s largest emerging markets.
Answering critics in a national address, Singh dismissed as "baseless" criticism that allowing multinational big-box retailers into the subcontinent will deal a deathblow to small businesses. Singh said allowing foreign direction investment in retail is similar to India’s opening of its manufacturing sector in 1991.
“All our major cities have large retail chains. Our national capital, Delhi, has many new shopping centers. But it has also seen a threefold increase in small shops in recent years,” said the prime minister in his televised address that also referenced other policy moves, such as curbing subsidies to petroleum products. “The growth of organized retail will also create millions of good quality new jobs.”
Under the new rules, retailers such as U.S.-based Wal-Mart Stores Inc. (NYSE: WMT) and France’s Carrefour SA (EPA:CA) will be able to establish cash-and-carry stores selling directly to consumers. Up until now, they have only been allowed to operate wholesale outlets. India’s 29 state legislatures will decide for themselves whether to allow these foreign companies to set up shop in their states. Companies that want to enter the market will also be required to put half of their investments into building infrastructure, such as warehouses, cold-storage facilities and transport systems. Further, they will only be allowed to open in cities with at least a million people.
All of this is music to the ears of Wal-Mart Stores executives. The Bentonville, Ark.-based retail behemoth, which turned 50 in July, has been a leader in entering the Indian retail market. In 2007, it partnered with Bharti Enterprises to establish Bharti Wal-Mart Private Ltd., a wholesale and supply chain operation.
Since the Sept. 14 announcement, Wal-Mart Stores and Bharti have discussed advancing their partnership, according Scott Price, CEO of Asia operations for Wal-Mart Stores.
"We will commit to retail in India," Price told the Wall Street Journal in a story published Friday. "But this idea that the gates have been opened and there's going to be a flood [of investment] is overwrought."
Price said it was too early to say where the new stores will be located. Currently, only nine Indian states have followed Singh’s call to open their markets to foreign direct retail-oriented investment, but the Wal-Mart Stores executive said he expected more states to open their markets. India’s retail industry is expected to grow 7.5 percent per year to $725 billion by 2017, according to the Journal, citing Delhi consulting firm Technopak.
Wal-Mart Stores shares fell 27 cents to $74.78 in late-afternoon trading.