FDI in retail is off the shelf for now
India allowed up to 51% FDI in multi-brand retail but not a single superstore has set up shop in India with giants including Wal-Mart, Carrefour and Tesco seeking clarifications on a host of details.india Updated: Oct 11, 2013 07:25 IST
The world’s largest retail chain Wal-Mart Stores Inc and Sunil Mittal-led Bharti Group has called off their six-year-old alliance in India bringing the curtains down on a troubled deal marred by government-probes and allegations of corrupt practices.
In a politically sensitive decision last September, India allowed up to 51% foreign direct investment (FDI) in multi-brand retail but not a single superstore has set up shop in India with giants including Wal-Mart, Carrefour and Tesco seeking clarifications on a host of details.
India is the world’s second largest producer of fruits and vegetables, but loses a quarter of its produce between the farm and the table. Likewise, nearly 7% of Indian grain rots in fields and granaries.
The refrigeration that would preserve all this food is non-existent, only one in seven tonnes of our veggies goes through cold storage.
Foreign investment in cold chains haven’t been coming because global chains have argued that the condition that they will have to procure about a third of the goods that they sell in India from local small firms and artisans is restrictive.
Earlier this week, Wal-Mart Asia CEO Scott Price described this mandatory sourcing rule as a “critical stumbling block”. The most immediate way to raise farm productivity would involve allowing the Wal-Marts and Carrefours to open their vends with deep back-end infrastructure that can contain this horrible waste.
The buyer benefits from lower prices — runaway food inflation is likely to settle well above comfortable levels this year. The farmer benefits from higher realisation — Indian farmers get a mere third of the price the consumer pays in contrast to two-thirds of the final value earned by their counterparts in countries that have big buyers. And the global retail chains get access to a $450 billion market.
India’s initial experiences with organised retail have not been pleasant. The Wal-Mart-Bharti break-off is perhaps symptomatic of the same phenomenon. Opposition from the trading community has forced local chains to put expansion plans on hold. Their foreign partners have been watching the politics play out.
The Indian retail market will potentially triple to more than $1.3 trillion by 2020. Yet, the world’s largest retailer has said it is not ready to invest yet. India desperately needs to pull itself out of a vicious cycle of low farm productivity.
The next Green Revolution is waiting to happen if we can stop 1% of our GDP from spoiling before it reaches the dinner plate. Policy-makers would be well advised to keep a close watch on how Wal-Mart’s decision hurts India’s image as an investment destination.