New Food Policy Allows Wal-Mart to Finally Grow in India

  • Ruling party had long opposed entry of global retail giants
  • Wal-Mart says move `very progressive,' to study details

Farm workers plant hybrid cucumber seeds in between capsicum saplings in a farm which supplies its produce to Wal-Mart, in Malerkotla, Punjab, India

Photographer: Prashanth Vishwanathan/Bloomberg

Prime Minister Narendra Modi, long an opponent of global retail giants, is finally giving them an opening in India.

Modi’s government is finalizing details of a policy to allow 100 percent foreign investment in marketing of food made in India. Companies like Wal-Mart Stores Inc. and Carrefour SA will be allowed to set up shops as long as they only sell locally produced food, according to Rajinder Chaudhary, a spokesman for the Department of Industrial Policy and Promotion.

"It’s not really a backdoor entry," Chaudhary said. “Earlier there was condition of 30 percent local sourcing -- now it is 100 percent local sourcing."

The move represents a shift for Modi, whose Bharatiya Janata Party counts small mom-and-pop retail stores among their most ardent supports and opposed the previous government’s move to allow foreign investment in multi-brand retail. The latest step marks a softening of Modi’s stance, and raises the possibility that previous obstacles such as state-by-state approvals to open stores will be removed.

"Clever" Move

Modi is looking to regain support among farmers as distress rises from the first back-to-back droughts in about three decades. He introduced a slew of measures to bolster the rural economy in his budget to double farmer incomes by 2022 as he looks to firm up votes before key state elections.

"It is a clever and a devious move to split the retail flanks," said Mohan Guruswamy, a former Finance Ministry official and chairman at New Delhi-based think tank Centre for Policy Alternatives.

Since India opened the retail sector for foreign investment in 2012, only Tesco Plc has sought a license to run supermarkets selling multiple brands. It has a joint venture with Tata Group unit Trent Hypermarket Ltd.

“India is a market with significant long-term potential," a Tesco spokesperson said in response to an e-mail query.

Wal-Mart shares closed 0.1 percent higher at $69.10 in New York on Monday. Tesco rose 0.5 percent to 190.90 pounds in London, while Carrefour rose 0.7 percent to 24.03 euros in Paris.

"Very Progressive"

Wal-Mart in 2013 scrapped a 50-50 joint venture with billionaire Sunil Mittal’s Bharti Enterprises Pvt., ending its plans to open multi-brand supermarkets. It now operates 20 wholesale stores, which is open to foreign investment.

Wal-Mart plans to study details of the government’s new policy closely when they are released, according to Rajneesh Kumar, vice president and head of corporate affairs at Wal-Mart India.

The move “is very progressive and will help in reducing wastage, helping farm diversification and encourage industry to produce locally within the country," Kumar said. “This far reaching reform will benefit farmers, give impetus to food processing industry and create vast employment opportunities."

Carrefour SA, France’s biggest retailer, announced in 2014 that it would exit India. An e-mail sent to the press relations team at Carrefour went unanswered.

Under the earlier multi-brand retail policy announced by the previous Congress government, joint ventures have to buy 30 percent of manufactured products from small- and medium-sized local businesses with less than $2 million invested in factories and machinery. They also need state approvals to set up stores.

Chaudhary declined to say if states will need to approve foreign retail outlets under the new policy.

"That will be part of the fine-print," he said. “The exact details of the policy are being worked out."

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