INTERVIEW - India eyes rapid retail investment

NEW DELHI Fri Nov 25, 2011 6:13pm IST

A man takes out a packet of yogurt from a refrigerator at a food store in Noida on the outskirts of New Delhi November 24, 2011. REUTERS/Parivartan Sharma

A man takes out a packet of yogurt from a refrigerator at a food store in Noida on the outskirts of New Delhi November 24, 2011.

Credit: Reuters/Parivartan Sharma

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NEW DELHI (Reuters) - India has opened its supermarket sector to foreign retailers such as Wal-Mart Stores Inc, pushing through a major reform aimed at attracting foreign capital and potentially easing stubbornly high inflation.

The policy comes with provisos on sourcing requirements and minimum investment levels.

Reuters spoke to P.K. Chaudhery, the Secretary at the Department of Industrial Policy and Promotion (DIPP), which crafted the policy. Here are some excerpts.

WHAT WILL THE SUPERMARKET POLICY DO?

"On the multi-brand, basically we understand that almost 60-70 percent of the shelf space is generally occupied by food items. This is one of the areas where we are looking at a major value addition, because a conditionality of the entry would be that 50 percent of the total investment will go in the backend infrastructure.

"It's got huge impact, not only in terms of giving good prices to the farmers but also through competition bringing the best prices to the consumer, and also quality of produce.

“The savings in terms of post-harvest losses, this we consider to be a very big thing which the international chains could bring in. Bringing in global players would help the redefining of the supply chain in India.”

THE SUPERMARKETS WILL BE RESTRICTED TO CITIES?

“We’ve chosen a calibrated opening of the sector. The smaller retailers, particularly in the smaller cities and towns, they had expressed a lot of concern at the stakeholder consultations.

“We are expecting a huge growth in the retail trade sector. There are varying estimates. Currently it’s about $400 billion, and in the next 4-5 years it’s expected to more than double. There will be plenty of space available.”

THE STATES GET TO DECIDE WHETHER TO ALLOW RETAILERS IN?

“Trade and commerce is a state subject. So if some of these states are more aggressive, the players will go to those states first. So it’s not something which we wanted to impose on people, but there is no restriction on entry into India.”

WHAT ABOUT THE 30 PERCENT SOURCING REQUIREMENT?

“The size of the unorganised sector, both in India and globally, is fairly large. And there was a feeling in certain stakeholders and ministries that there has to be a space which needs to be provided. It’s basically to address that concern.”

WHAT ABOUT THE $100 MILLION MINIMUM INVESTMENT?

“We have not specified the period. It depends on their business model. But we expect the international players to bring in this investment quickly because it’s a big market to attract them.”

ARE THE CONDITIONS TOO STRICT?

“I don’t think the conditions are strict. What are the conditions? The conditions are that OK, you will set up shop in large cities or areas around the cities. The second is about this 30 percent sourcing, which in any case typically roughly around that part comes from the small and micro enterprises. Then the other condition is investment in the backend infrastructure. Yes, every country looks at what is of use to me. So we feel that a) it is going to be essential for these players to make that investment and b) we thought that this is important from the country’s perspective.”

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