India is a huge retail market that is estimated to generate annual sales of $450 billion; it’s no wonder that global retail giants like Walmart, Carrefour, and Tesco have been knocking on India’s retail door for years. Businesses and government officials, recognizing the potential market, have been pressuring India to open up its retail sector. Last year, President Obama called for India to remove caps on foreign investment in retail and insurance sectors.
India has feared opening up to foreign investment in retail because of the potential for extinction of neighborhood stores that may not be able to compete with global retailers. Under current regulations, only single‐brand retailers like Marks & Spencer and Nike are allowed to bring in up to 51% foreign direct investment into India. Multibrand retailers like Walmart are only allowed to run wholesale operations that distribute to small businesses, not consumers.
In July, an Indian government panel approved a proposal that will allow direct international investment into India’s retail sector. Foreign investors have to invest at least $100 million to set up operations and stores can only be built in cities with populations greater than 1 million. The policy change means that international retailers may start selling to Indian shoppers through partnerships with Indian retailers. The hope is that the majority of investments from the international retailers will be used to develop back‐end infrastructure like storage and refrigeration systems.
- How will recent changes in governmental regulations change the way retailing is done in India?
- How will these changes effect U.S.‐based retailers interested in expanding operations to India?
Rajesh Roy, Abhrajit Gangopadhyay, and Rumman Ahmed, India Moves to Open Up to Foreign Retailers, Wall Street Journal, July 23, 2011.
Jessica Millman said:
As a result of these governmental regulations retailing in India is going to be completely transformed. This is because of how large and thus attractive the Indian market is to businesses who wish to expand into foreign markets. India will very likely see a an influx of foreign investors who will be willing to invest the $100 million minimum to be able to gain access in India that they were previously denied. By having all of these new entrants and large firms in India we may see small businesses in India suffer as they may find it difficult to compete on price. However, it may prove to be beneficial for India because they will most likely tax these firms and thus gain a significant amount of money from these foreign firms.