C&B Notes

India’s Retail Reform – “We Mean It This Time”

After a similar decision was quickly reversed last year, India’s government has once again cleared a controversial plan to open up its lucrative retail sector to global chains.  Whether this is simply a superficial/symbolic step or real reform will be determined at the local level, as the policy allows each state to ultimately decide which global retailers are allowed in their territories.

India’s government announced a dramatic suite of reforms on Friday designed to breathe new life into the nation’s flagging economy and combat criticism that the second-term coalition is mired in a state of so-called policy paralysis.  Among the changes is a long-debated plan to allow up to 51% foreign direct investment (FDI) in local ventures by multi-brand retail outlets like Walmart and Carrefour, as well as allowing up to 49% FDI in India’s beleaguered airlines and relaxing regulations for foreign single-brand retail outlets.  The announcement followed a controversial 14% hike in diesel prices and a cap in the number of subsidized cooking-gas cylinders allotted to each household, sparking protests across the nation on Saturday.

The Cabinet has stipulated that, in most locations, the multi-brand retail outlets may only set up in large cities, and that in the case of multi-brand retailers, half of the required minimum $100 million investment has to go into back-end infrastructure.  Supporters of the move say the global companies will provide employment for thousands, help farmers cut out middlemen and contract directly with the companies, and improve India’s supply-chain apparatus.