For Punjabi cucumber farmer Jaswinder Singh, the Indian government’s decision to put off the entry of Wal-Mart Stores Inc. (WMT) into the country is a dream deferred.
“Politics is killing the farmers,” said Singh. “The government controls the food chain and the middlemen from top to bottom. Cooperation with foreign companies will help farmers.”
The government reversed last month’s decision to allow foreign investment in stores selling more than one brand after protests from the opposition. Jaswinder Singh and 10 other farmers were counting on the expertise of the multinational retailers to boost demand and pay them more for their produce.
Prime Minister Manmohan Singh and Commerce Minister Anand Sharma have said opening the retail industry would help control inflation above 9 percent by reducing the amount of farm produce that rots before sale and bringing better prices to farmers. The policy reversal delays plans by companies such as Wal-Mart and France’s Carrefour SA (CA) to expand in India’s $400 billion retail market and build supply systems to stock stores.
Farmers could collaborate and “exchange knowledge” with foreign retailers to boost production, said Singh, the farmer. Wal-Mart’s joint venture with Bharti Enterprises has 14 “Best Price” wholesale outlets and buys from about 2,000 farmers in Punjab and Haryana, Mukesh Madhukar, head of its direct farms program said on Dec. 2. It aims to increase that number to 35,000 by 2015 for the wholesale business.
Restricted to Wholesale
Overseas “multibrand” retail companies such as Target Corp. (TGT), the U.K.’s Tesco Plc (TSCO), and Germany’s Metro AG (MEO) are only allowed to operate wholesale stores in India. For retail stores selling one brand, such as Inditex SA’s Zara or Marks & Spencer (MKS), foreign companies have been restricted to 51 percent ownership.
Under the Nov. 24 decision, which the government reversed yesterday, overseas investors would have been allowed to own up to 51 percent of retailers selling more than one brand provided they invest at least $100 million, with half to be spent on developing back-end infrastructure in India. The government had also said it would allow full ownership in single-brand retail.
“This will act as a drag as far as the retail sector is concerned,” said Gautam Duggad, a Mumbai-based consumer and retail analyst at Prabudas Lilladher Pvt. with an “accumulate” rating on Pantaloon Retail India Ltd. (PF) and Shoppers Stop Ltd. (SHOP) “The sector does need money, capital.”
Pantaloon, the country’s largest listed retailer, had jumped 13 percent on Nov. 24, before the government announced relaxing the retail rules, and another 16 percent the day after. Biggest listed rival Shopper’s Stop gained 12 percent over the same two days.
Pantaloon, which dropped 3.6 percent to 191 rupees in Mumbai trading as of 10:48 a.m. today, has since pared its gains since Nov. 23 to 6.9 percent. Shoppers Stop was down 0.1 percent today and has lost 0.9 percent in the same two-week period.
“I don’t know why the government has taken this decision, but it will be a loss for the farmer,” said Mohammed Nazir, who grows eggplants and other vegetables in the Punjab village of Malerkotla. “It would be good if more companies come to us.”
Purchasing from farmers has been “a huge success” for Wal-Mart’s wholesale venture in India, Madhukar said. “The farmers are getting higher yields and higher prices.”
The global chains were likely to invest in trucking and distribution systems in India, where government estimates show 40 percent of fruit and vegetables rot before being sold because of the lack of cold-storage facilities and poor transport infrastructure. Farmers will have “assured business” if foreign companies were allowed to invest in multibrand retail, said Pratichee Kapoor, associate director for retail at Technopak Advisors Pvt.
India reversed its decision amid protests by the opposition and its allies that had forced repeated adjournments of parliament. Opposition parties argued that the move would wipe out the jobs of small shopkeepers, who dominate the country’s retail sector.
Rajan Bharti Mittal, managing director of Wal-Mart’s wholesale partner Bharti Enterprises, in a statement yesterday called the government’s reversal an “unfortunate” decision. The policy change would have brought “farmers better realization for their produce as well as better prices for the consumer,” he said.
Arti Singh, a spokeswoman for Wal-Mart in India, didn’t answer calls to her mobile phone and Mohan Shukla, director of corporate affairs for Carrefour in India, didn’t immediately comment.
“It will affect the farmers,” said Nazir, the Punjab farmer. “We’ll have to go to the open market again. We’ll get lower rates for our vegetables.”