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Local sourcing for single foreign brand retailers should spur Indian enterprise.

india Updated: Jan 22, 2012 09:34 IST
foreign brands,GAP,Congress

The government's decision to allow wholly-owned shops of single foreign brands, coming as it does within weeks of an embarrassing policy U-turn on international supermarket chains, should soothe the anxiety of those despairing of reforms in India. Since single foreign brands were permitted majority ownership of retail outlets in the country in 2005, a mere $45 million has been invested marking the reluctance of the purveyors of luxury and niche products like sports goods to enter a market without complete control. The government hopes to turn this lukewarm response into something robust enough to draw the big names in the field like furniture giant IKEA and clothing chain GAP. The clause requiring fully-owned international shopping chains to source 30% of their products by value locally should, the government hopes, plug India's army of artisans into a global logistics chain. Indian jewellers, carpenters, tailors and tanners mostly work in an unregulated environment. They stand to benefit from the capital, technology and management practices incorporated in the modern high street shopping format.

The country's shopping experience overall ought to improve as well. Part of the decision to open retailing -single- or multi-brand - is based on a need to energise a becalmed segment of the economy. India has one shop for a hundred people. The atomisation of the industry robs shopkeepers of any pricing power that would allow them to scale up. Operating in the unorganised sector, 98% of the trade has no access to the institutional supports of business like credit. As it exists today, India's retail sector has no hope of acquiring the efficiencies of a modern industry. Although single-brand shops are unlikely to have as deep logistics chains as supermarkets, they would still need to invest in significant vendor development to be able to set up shop here. This ought to catalyse a segment of the industry. If nothing else, it would make it less appealing for the well-heeled Indian to travel abroad in search of her favourite diversion: shopping.

The Indian consumer now has access to both the big-box and high-street buying experience. The cash-and-carry wholesale trade was opened up to foreigners nearly a decade ago, and Metro and Carrefour have expanded their footprint. Walmart has set up back-end infrastructure for large format stores after the government opened up this side of the business to international players. Meanwhile, India's corporate retailers have stitched up a sizeable presence in the supermarket space, although they are nowhere in the league of the big global players. In a way, the government has been able to cut through till it is just shy of the core resistance to modern shop-keeping: the grocery business. And there is hope that, once assembly elections are out of the way, the Congress will get down to convincing its allies about the need for allowing foreigners into the supermarket business as well.

First Published: Jan 11, 2012 22:34 IST