Illustration: Mayank Chhaya
Indians, long deprived of the high-end shopping experience (being tongue-in-cheek) offered by Walmart, may soon be able to enjoy it firsthand. The Indian government has formally announced that it is opening up the country’s huge but largely disorganized retail sector to foreign direct investment.
Under the new policy announcement India will allow 51 percent foreign equity in multi-brand retail and 100 percent in single brand retail. What it means that retail chains selling multiple brands, such as Walmart, can now own 51 percent of its India operations, while single brand names such as Apple for instance can own their own stores 100 percent. This is a significant policy shift at a time when market watchers around the world have begun to wonder whether India is losing some of its shine.
In a country where even today groceries and farm produce come to you rather than you going to them, it is anybody’s guess whether big box retail will succeed. The most important reason why it might succeed is because of the sheer diversity of the shopper demographics. While nothing beats ordering your weekly supplies on mobile phone to be delivered at your doorstep, there is something to be said about going to a giant big box store and being able to buy everything in one shot.
One of the daunting challenges that I see for western retail giants setting up shop in India is finding the right real estate for it. Open spaces where a massive store of Walmart’s size can be located with its parking space and inventory delivery facility will be a major challenge.
The new policy requires that such stores can be opened only in cities with more than one million population, which necessarily means that real estate will be expensive. Only 53 cities out of a total of 8000 urban centers meet the population requirement. The Indian government will also insist on a minimum investment of $100 million, which may not be that difficult to spend considering the land prices. Of the $100 million minimum, 50 percent will have to be spent on developing rural infrastructure and 30 percent on sourcing from small and medium enterprises, according to Commerce Minister Anand Sharma.
On the face of it, it seems the Indian government has taken enough care to ensure that retail giants guarantee local economic and employment growth that makes this a politically sound decision in the long run. Notwithstanding that there is already opposition to the decision from those who fear that retail giants will destroy millions of mom and pop stores and farmers’ markets in the country. Some are already getting nostalgic about a shopping experience provided by produce markets such as the one below.
In a country where some estimates say nearly 50 percent of fruit and vegetable produce gets wasted because of a lack of cold storage and efficient supply chain, the policy shift should be welcomed. Unfortunately for urban dwellers, who see a great romance in going to a farmers’ market and individually selecting each cucumber or lime, do not recognize how hard the cycle is from cultivating the produce to reaching them to the market.
Perhaps as a uniquely Indian feature retail giants can have stores which recreate the atmosphere of a farmers’ market inside the box stores.
