MUMBAI, Sept 20 (Reuters Breakingviews) - India’s striking shopkeepers needn’t worry so much. New reforms proposed by Prime Minister Manmohan Singh will eventually open the door to global retailers like Wal-Mart(WMT.N), Carrefour(CARR.PA) and Tesco(TSCO.L), all currently limited to running wholesale businesses. But India’s small shops won’t go out of business any time soon. Competition may even be good for them.
There are an estimated 50 million “mom and pop stores” in India, and some 220 million people depend on them for their livelihoods, according to the Confederation of All India Traders. In developed markets small shops have suffered under competition from big-box retail. The suggestion of letting foreign retailers own 51 percent of retail joint ventures saw shopkeepers join waves of strikes across the country on September 20.
In reality, there’s plenty to go round. A mere 10 percent of India’s $500-billion-a-year retail sector is captured by large stores. The sector is still growing too, and by 2015 retailing is expected to top $800 billion according to the Confederation of Indian Industry. The average Indian is unlikely to give up the convenience of a local shop to an out of town hypermarket.
New investment won’t happen overnight. Individual state governments will decide whether to allow supermarket chains to enter and retailers will only be allowed to set up shop in cities with a population of more than 1 million. The inflated cost of real estate in big cities will force the big shops to the outskirts of the large metros.
Opposition may be mostly among middle men who supply the sector. Their scale allows them pricing power over the millions of small shops. That could change if the likes of Tesco and Wal-Mart have their way. It’s telling that farmers’ groups have supported the change, believing that cutting out such middlemen will raise the prices they can charge the retailers directly.
At least ten states have already said they would welcome foreign investment. Once they do, it will be only a matter of time before others follow. Consumers want more choice and cheaper prices, and India needs the additional infrastructure and productivity big retail will bring. And the moms and pops should relax: if the going gets too tough, they might even be able to sell out one day to deep-pocketed foreign buyers.
- India’s opposition parties led a nationwide strike on September 20 to protest against the government’s decision to allow foreigners to invest directly in retail operations, taking as much as a 51 percent stake. At present foreign retailers are only allowed to operate joint ventures in wholesale companies.
- The proposed reforms would allow individual state governments to decide whether to allow foreign supermarket chains to enter. Foreign retailers would have to source almost a third of their manufactured and processed goods from industries with a total plant and machinery investment of less than $1 million.
- They would have to invest a minimum of $100 million, and put at least half of their total investment into so-called ‘back-end’ infrastructure, such as warehousing and cold storage facilities. Retailers would also only be allowed to set up shop in cities with a population of more than 1 million.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
Editing by John Foley and Katrina Hamlin