Wal-Mart Stores Inc. (WMT) and Carrefour SA (CA) may gain access to the retail market of the world’s second most-populous country after an Indian government panel was said to have recommended easing restrictions on the industry.
Overseas companies could be allowed to own as much as 51 percent of stores that sell more than one brand if they invest a minimum of $100 million, a panel of bureaucrats in New Delhi recommended on July 22, according to a finance ministry official. Pantaloon Retail Ltd., India’s largest listed store owner, rose to its highest level in more than six months in Mumbai today.
“It would get in new players to the market -- you’d have more efficiencies coming in,” Abhishek Ranganathan, a Mumbai- based analyst at MF Global Sify Securities Pvt., said by phone. “What something like a Wal-Mart or a Carrefour can actually bring to the table in terms of knowledge, back-end systems and supply-chain efficiencies can help Indian retailers they choose to partner with.”
India currently allows overseas companies 51 percent ownership in retail shops selling only one brand and 100 percent in wholesale stores. The world’s two biggest retailers Wal-Mart and Carrefour, who already operate wholesale outlets in India, seek to sell in a market that Business Monitor International estimates will be worth $396 billion this year and may double to $785 billion in 2015.
The cabinet will make a decision after consultations are held, said the person, who had direct knowledge of the matter and declined to be identified before an announcement.
Pantaloon gained 1.5 percent to 338.25 rupees, the highest since Jan. 12, in Mumbai. Second-ranked Shoppers Stop Ltd. was little changed at 467.7 rupees.
“Everyone expects some of the foreign guys to come in and pick up stakes in some of these companies,” Sameer Narang, a Mumbai-based analyst with HDFC Securities Ltd. said by phone.
Wal-Mart may open hundreds of retail shops in the country if the rules are changed, Raj Jain, chief executive officer of its India venture, said last year.
Arti Singh, senior vice-president for corporate affairs for Wal-Mart’s India operations in New Delhi, declined to comment before seeing an official notice.
“Carrefour can contribute to modernize distribution in India,” Florence Baranes-Cohen, Carrefour spokeswoman, said in an e-mailed statement on July 21. “We’re following closely the potential evolution of legislation in India.”
Allowing foreign direct investment in multi brand retailing would help cut waste, Jain said in May. About 40 percent of India’s fruit and vegetables rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to the government.
“We’ll see a lot of new retailers coming in,” Kishore Biyani, managing director at Pantaloon Retail Ltd., said in a July 22 interview with Bloomberg-UTV. “The industry needs money and the industry needs to grow.”
Wal-Mart, the world’s biggest listed company by sales, buys produce from about 1,200 farmers in the northern Indian state of Punjab and helps them improve yields, Jain said.
“Allowing foreign investment in retail is a priority area for this government,” said Suhas Naik, chief operating officer at IL&FS Portfolio Management Services, which manages about $100 million in assets. “High inflation will provide the right background for the policy to be implemented without much opposition.”
Wholesale price inflation rose 9.44 percent in June and has stayed above 8 percent since December 2009. Food-price inflation averaged 10.67 percent this year.
Relaxing rules on foreign direct investment in retailing “would enable the global retailers to invest in technology and bring efficiencies to the market,” said Natalie Berg, co-global research director at Planet Retail in London.
Bharti Walmart Pvt., a venture with billionaire Sunil Mittal’s Bharti Enterprises Pvt., runs seven wholesale stores and plans to add as many as 12 by 2012. Paris-based Carrefour set up its first Indian wholesale store in December.
Germany’s Metro AG operates six wholesale stores in India, according to its website. British retailer Tesco Plc (TSCO) in 2008 signed an agreement with Trent Ltd. (TRENT), the retail arm of India’s Tata Group, to set up cash-and-carry stores.
Trent fell 2.6 percent, the most since Feb. 9, to 1,204.2 rupees.
“The market is new and highly under-penetrated,” Ranganathan said. “There is huge scope, the pie is large and growing rapidly.”
India’s 1.2 billion population, second in size only to China’s, is expected to grow to 1.4 billion in 2026, according to the Census of India 2001. A growing middle class, expanding economy and increasingly brand-conscious population will help boost retail sales 35 percent over the next three years, A.T. Kearney said in a report last year.
India can sustain economic growth rates of as much as 9.5 percent without stoking inflation, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said July 11. Prime Minister Manmohan Singh’s government aims to accelerate India’s economic expansion to as much as 10 percent and sustain that pace for more than two decades to cut poverty.
Wal-Mart has “intensive plans” to expand in India, Asia chief Scott Price said March 30. Its annual sales in India amounted to less than $1 billion, compared with $8 billion in Japan and $7.5 billion in China, Price said.
Reliance Industries Ltd. (RIL)’s retailing business plans to double clothing stores to 100 by yearend and open wholesale shops to compete with Wal-Mart.
“The biggest challenge is going to be retail space -- that’s what I think is going to command the choice of a partner” for overseas retailers, Ranganathan said. “You are not fighting for the consumer’s wallet yet. You’re fighting for retail space more than anything else.”
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