India’s underdeveloped modern retail sector seemed to present the perfect investment – but expansion has not proved so simple for retailers.
Remember a few years ago when India was ‘the next big market’ and the world’s leading retailers were scrambling to gain a foothold there?
A huge population, a fast-growing economy, an exploding middle class, an underdeveloped modern retail sector – all of these factors attracted the interest of retailers such as Walmart, Carrefour, Tesco, Metro Group and Auchan.
It was deemed only a matter of time before the market was deregulated and these foreign giants would be allowed to push on with expansion in the country.
The Indian National Congress (INC) government had opened up the multi-brand retail sector in 2012, allowing up to 51% foreign direct investment (FDI). Things seemed to be on the right track and the global players started to invest more heavily into their operations in the market.
However, things were not so simple. Although FDI had been sanctioned at a national level, state governments have been free to make their own decisions about the policy’s actual implementation.
India has around 29 states, with incumbent administrations that range from enthusiastic free-market capitalist to hardline communist. Naturally, each has its own, distinctly different view on FDI.
That led to uncertainty for many foreign retailers, a situation that only became worse following the recent election of the nationalist-leaning Bharatiya Janata Party (BJP).
The BJP election manifesto clearly stated that it did not intend to support FDI in multi-brand retail and recently the commerce and industry minister said the government will not “entertain” FDI in multi-brand retail.
Carrefour and Auchan have recently announced they are leaving the market altogether. Walmart terminated its joint venture partnership with Bharti last year and has frozen expansion of its Best Price Modern Wholesale cash-and-carry stores until 2015.
It is clear that India, while promising huge long-term potential, has serious short-term risks for global retailers.
- Rob Gregory, global research director, Planet Retail