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Foreign superstores set to enter India

Government passes bill allowing foreign investment in retail sector, but what will the fallout be for $450bn industry?
Last modified: 5 Dec 2012 21:50

The arguments have ranged from "How will a man on a bicycle, or a three-wheeler, go to Walmart?" to the effect the retailer would have on small corner stores. Even Barack Obama's support for small retailers in the US was cited.

However, after two days of heated debate, involving a lot of shouting, name-calling and finger wagging, India has now opened the doors to the world's megastores.

City dwellers will soon have the dubious privilege of doing all their shopping under one roof, which could belong to Tesco, Carrefour or even Walmart. This is just the next step in the government's ambitious economic reform package, started in the 1990s when Prime Minister Manmohan Singh was finance minister and spearheading efforts to open up the economy.

Despite his lofty ambitions, any progress over the decades was made in fits and starts, due to fierce opposition, which inevitably would lead to fiery debate in parliament.

The latest parliamentary fracas was a non-binding vote on allowing multi-brand foreign retail companies into the country. It was a crucial test of strength for the Congress-led ruling coalition, which has been under fire for allowing foreign direct investment in a sector dominated by millions of family-run businesses.

Retail is the second largest source of employment in the country, and has 40 million workers ranging from street vendors to shop owners.

The opposition says the move would squeeze existing retailers and cost jobs. That's a sentiment echoed by Dharmendra Kumar, from India Foreign Direct Investment Watch, a grass-roots action group that aims to protect the rights of local retailers.

According to Kumar, 70 per cent of shops are run by families, and it's the little guys that will be pushed out by the big superstores.

But Asia's third largest economy lags well behind China and many South East Asian countries when it comes to foreign investment.

India's economy looks set for its worst performance in a decade, with low growth and high inflation. Investors are urging the government to push through deeper reforms to cut a swelling fiscal deficit and revive the country's investment climate.

This victory from Congress, though, is expected to pave the way for other long-awaited reforms, including modernising laws on banking, insurance and land acquisition.