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India flashes wait sign for Walmart, Tesco

Last updated on: January 31, 2011 17:01 IST

Commerce and Industry Minister Anand Sharma has asked global retail chains not to rush the government into allowing foreign direct investment (FDI) in multi-brand retail.

The minister, who met the global CEOs of retailers such as Walmart, Tesco and Carrefour on the sidelines of the World Economic Forum meeting here, said the government would take a decision in due course. In the meantime, the retail chains should invest in back-end infrastructure, he said.

"I told them that every investment is an act of trust. Believe in India and you will not go wrong. They should continue investment in back-end infrastructure. I obviously can't discuss our policy decisions with them. I can only say 'count on us'," he said.

Multi-brand, he said, can only come when back-end infrastructure is created, as that is where the farmer will get remunerative prices at the door step. In addition, tens of millions of jobs will be created. "You cannot say that I will have a front-end in the absence of back-end infrastructure," Sharma said.

Pointing out that he could not set any timeline for a decision on allowing FDI in multi-brand retail, Sharma said such decisions took time in a democracy as the government had to take everyone on board.

In July last year, the government had floated a discussion paper on liberalising the politically-sensitive multi-brand retail. The sector, employing over 33 million people, is dominated by mom-and-pop stores.

The paper said India was losing agri products, fruit and vegetables to the tune of Rs 1 lakh crore annually. It said establishment of cold chains and back-end infrastructure could cut down these losses by more than half. The investment projected was over Rs 64,000 crore (Rs 640 billion).

Though the minister said the global CEOs were quite receptive to his comments, it might not be the case. Just two days ago, Walmart International President and CEO Doug McMillon said the Indian government's concerns over allowing FDI in multi-brand retail were misplaced.

McMillion gave the example of Mexico, which allowed FDI in multi-brand retail in 1991 after an intense debate on whether the move would ruin local retailers.

"Even now, half the market in Mexico is controlled by local mom-and-pop stores," he said, adding: "The lesson I can draw is, don't be obsessive about looking after the interests of retailers".

Walmart operates in Mexico under the Bodega Aurrera brand. The global head of the world's largest retail chain said the retail chain's pitch was simple.

Allow Walmart to invest in more stores and make more profits, so that it can plough money back into India's food supply and cold storage infrastructure, which, in turn, can help the retail chain keep prices of essential consumer products low.

The government allows 100 per cent FDI in single-brand retail and 51 per cent in cash-and-carry stores.

 

Shyamal Majumdar in Davos
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