Walmart has called on the Indian government to relax Foreign Direct Investment laws that do not allow foreign investment in multi-brand retail, but do allow 51% foreign investment in single-brand retail and 100% in wholesaling. Walmart said it would open hundreds of stores in India if it were to change its laws.
Walmart has called on the Indian government to relax Foreign Direct Investment (FDI) laws that do not allow foreign investment in multi-brand retail, but do allow 51% foreign investment in single-brand retail and 100% in wholesaling. Walmart said it would open hundreds of stores in India if it were to change its laws.
The development comes following a paper released by the government discussing a possible change in the law.
Currently Bharti Walmart, the retailer’s joint venture in India, operates two wholesale stores under the Best Price Modern Wholesale banner and has 80 stores operated by Bharti Retail franchise partner. It plans to open another 60 before the end of 2010.
Bharti Walmart managing director and chief executive Raj Jain believes there would be clear benefits to retailing in India if FDI laws were relaxed. Jain said: “It is essential FDI in retail opens up, because then we can open stores and carry the product in hygienic, safe conditions, not only at the farm-gate but also where the consumer buys from us.”
China relaxed its FDI laws in 2004 and since then Carrefour, Tesco and Walmart have collectively opened 583 stores, taking their combined store networks to nearly 900. While these numbers are not startling, Carrefour and Walmart are the fourth and fifth largest grocery retailers in China respectively and over the next five years are expected to double in size.
The arguments against FDI in India are based upon competition against local retailers. India has a huge traditional sector and the government fears that allowing 100% FDI would encourage excessive expansion by the multinationals and put local retailers out of business. On the flipside to this, there is potential investment from multinationals in supply chain and infrastructure and improved conditions in hygiene and safety at local farms.
As Walmart looks to exert its force in India, local retailer Aditya Birla is currently in negotiation with Indian banks to raise funds for its accelerated expansion. According to local sources, the group hopes to raise INR250bn (£34.7m) through debt and equity. The group expects to invest INR200bn (£27.6m) by March 2011 to open 100 supermarkets and eight to 10 hypermarkets.
The reliance on debt to fund growth by the country’s third largest retailer is a sign that if FDI laws were to be relaxed, the muscle of the likes of Walmart would be more than the local players could handle.
Greg Hodge is research director, Planet Retail.
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