Last week India’s new government, with Manmohan Singh as prime minister, was sworn in in Delhi. Singh and the Congress Party won a decisive mandate with his pledge to tackle the impact of the global economic crisis and by ensuring growth for the country.
Foreign retailers will welcome the new government. Over the next few weeks it will be working out a new foreign trade policy – part of which will be fine-tuning the Foreign Direct Investment (FDI) policy. It is widely expected that there will be further liberalisation of the FDI policy as the flow of foreign money is lucrative, and emerging markets such as China and Brazil are welcoming foreign investment.
“The new government is very liberal and they are all very like minded with foreign investors so the potential is huge,” said Planet Retail analyst Manu Ghai.
While this may be good news for India as an emerging market, many retailers warn that the country has taken a hammering with the global recession. Speaking at the World Retail Congress, Kingfisher chief executive Ian Cheshire said: “I don’t think anyone is making any money in India.”
US retailer Wal-Mart is not put off by this and had been aiming to get ahead of the grocery market by making its debut in India this month. Its new BestPrice Modern Wholesale store – a cash-and-carry wholesale operation in partnership with Bharti Enterprises – will open in Amritsar, near the border of Pakistan in the state of Punjab. However, the launch has now been delayed due to violence in the area.
“Bharti is an excellent local partner and Wal-Mart has wanted to get into the market for a long time so it won’t be put off by the recession,” said Ghai. “While it may take some time to take off it will stand Wal-Mart in good stead as it will give it a head start.”
The Amritsar shop will be the first of between 10 and 15 shops expected to open in the next five to seven years, and will only be open to trade customers.
Peter Bracher, former head of operations at Reliance Retail, said: “The irony is that in India, with its millions of highly efficient small kirana stores [mom and pop stores], it’s the cash-and-carry operation that may present the best opportunities.”
Bracher says that all modern format grocery retailers are making a loss in India and warned: “Without the scale to change the balance of power between suppliers and retailers this will not change soon.”