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February 14, 2014
Anjana
Pasricha, Voice of America
New
Delhi, February 14, 2014
In
India, two newly elected state governments have rolled back decisions
to allow the entry of foreign supermarkets. This is yet another
blow to the country’s hopes of winning foreign investment
in the retail sector, and could further shake global investor
confidence in India.
The decision by the northern Rajasthan state earlier this month
to bar foreign direct investment by overseas retail chains such
as Walmart followed a similar move by Delhi.
New local governments took charge in both states in December —
led by the Bharatiya Janata Party in Rajasthan and the Aam Aadmi
Party in Delhi. Both parties oppose foreign supermarkets, fearing
they could take away local jobs.
The federal government allowed global retailers to enter India
more than a year ago in the face of stiff political opposition,
but it left it to individual state governments to make the final
call. So far, fewer than half the country’s 28 states have
given a go-ahead to foreign retail chains.
Arpita Mukherjee at the Indian Council of International Economic
Relations in New Delhi said the decision by the Delhi and Rajasthan
governments will further dampen the enthusiasm of foreign retailers,
who are already disheartened by tough regulations on their entry
into a market that she called “very difficult to operate."
“This is the first time that we have a rollback of the policy,
and that gives very, very wrong signals to investors. India is
a large market, but it is a highly fragmented market and our growth
rate has slowed down. India is not an easy market to set up your
supply chain,” said Mukherjee.
So far, Britain-based Tesco is the only global chain to propose
an investment in India. It announced in December that it will
invest $110 million and partner with a local company to set up
three to five local stores every year.
That is some positive news for India, which had hoped to attract
billions of dollars in a retail market estimated to be worth $500
billion.
However, industry analysts think most retail chains are waiting
to see who takes charge of India’s next government after
elections, to be held by May. The ruling Congress Party, which
allowed the entry of supermarkets, is expected to lose power.
The BJP, which is tipped to win, is broadly considered more business-friendly.
However, the party opposes foreign supermarkets on the grounds
that they could impact the livelihood of small shopkeepers – a
core support base.
Devangshu Dutta, head of Third Eyesight consultancy, which
focuses on the retail sector, stressed the importance of predictability
for foreign investors.
“If there is one thing that any investor looks at, it is
predictability in any form. From that perspective, any reversal,
and especially quick reversals, are negative, and that makes any
investor who is already cautious even more cautious. Unfortunately
that is the environment we are operating in at the moment,”
said Dutta.
What happens in the retail sector could be key as India seeks
to restore international investor confidence and give fresh momentum
to its flagging economy.
(Sourced from Voice of America.)
