India close to opening up $450bn retail sector

India's cabinet could decide as early as this week to throw open the nation's vast retail market to supermarket behemoths such as Wal-Mart and Tesco in a bold but highly controversial reform. Foreign multinationals have lobbied for years to be able to sell directly to India's 1.2 billion consumers, seeking access to a retail market estimated by consultancy McKinsey to be worth $450 billion a year. "If this proposal gets through, consumers will have many more choices -- it will truly be a borderless world in terms of products available," Gibson Vedamani, board member of the Retailers Association of India, told AFP. Supporters also see the opening up of the retail market to foreign players as a way to increase efficiency in the food supply chain, which would lead to reduced prices and lower inflation, which is now close to 10 percent. The full-scale entry of international retail chains would also revamp storage and transportation methods, reducing a chronic problem of spoilage and ensuring fresher products are available. Critics worry however that big, air-conditioned stores with shrink-wrapped produce will drive small players out of business, despite assurances from industry figures that the market is large enough to accommodate all players. A decision could be taken this week, a government official told AFP. But even if the corruption-plagued and weakened cabinet led by Prime Minister Manmohan Singh approves a change, it is likely to face a severe challenge in parliament. The plan is "a tool to kill the domestic (retail) industry," said Murli Manohar Joshi, a top leader of the main opposition Hindu nationalist Bharatiya Janata Party (BJP). "If foreign direct investment in the retail sector is allowed, small traders will lose their jobs as their products will not be able to compete with foreign traders." Multi-brand foreign groups such as US-based Wal-Mart currently operate as wholesalers in India but are prevented from selling directly to the public. Most consumers currently shop at local markets. The policy change would enable foreign groups to welcome the public into big-box stores opened via partnerships with Indian retailers, which could be up to 51 percent foreign-owned. The Congress-led central government may also raise the foreign investment cap to 100 per cent from 51 percent at present for single brand retail operations such as Nokia or Reebok. India's chain retail industry, which has been lobbying hard for the changes, is cheering the Congress-led government on from the sidelines, anticipating lucrative tie-ups with foreign firms. "It will enable a lot of companies to get into India," Vedamani of the Retailers Association of India, told AFP. The changes would represent a huge opportunity for large foreign retailers such as Wal-Mart and France's Carrefour, faced with saturated Western markets. To ease opposition, the cabinet was reported by The Economic Times and Business Standard newspapers to be preparing to stipulate that foreign retailers must source a minimum percentage of products -- expected to be around 30 percent -- from small and medium-sized businesses. Foreign retailers are also expected to be told to invest $100 million locally, the reports said. At least half of that sum would go to "back-end" logistics and storage infrastructure to build up India's antiquated food supply chain in which up to 40 percent of fresh produce spoils before it hits the market. Allowing foreign players to sell directly to the public "will bring more competition in the market and reduce the gap between prices at the farm and retail levels", chief government economic advisor Kaushik Basu said.