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India's Liberalization of Retail Sector Stays Limited


The Indian government has decided to liberalize the country's retail sector slightly, by allowing foreign companies to own stores that sell single-brand products. India's fast-growing retail market remains largely closed to foreign investment.

Brand names such as Nike, Adidas and Reebok have been sold in India for many years through franchisees, because India has strict barriers on foreigners owning retail businesses.

Now, the government says it will allow foreign companies that sell single brands to own up to 51 percent of a retail shop or chain. However, foreigners are still barred from owning stores that sell multiple brands.

Arpita Mukherjee of the Indian Council for Research on International Economic Relations says the government's move to allow foreign direct investment, or FDI, in retail businesses is only a tiny start.

"We are coming from a situation where FDI is not allowed in retail to a situation, at least in one area, it is being allowed," she said. "So however small it may be, it is a step in the right direction."

The government says the new measure is aimed at attracting investment and technology into India's $250-billion retail market. The market is the eighth largest in the world, but is dominated by small businesses that are often out-dated and inefficiently run.

Analysts say the retail sector will need to be opened up on a much larger scale before Indian industry and consumers can benefit from modern retail and distribution systems.

Many economists and Western governments have been urging India to open up its retail sector. But communist allies of the government have blocked any such move, because they fear it may force the closure of many of the nearly 15 million small mom-and-pop stores across the country.

The head of the Communist Party of India (Marxist), Sitarram Yechury, has said that left-wing parties will continue to oppose any further liberalization of the sector, which sustains more than 40 million jobs.

"We are opposed to foreign capital entering your retail trade sector," said Yechury. "And our opposition is based on the fact that the retail sector in India today, contributes very significantly to …your employment."

Some of the world's biggest retailers, such as U.S.-based Wal-Mart, are eying the Indian market. The retail sector is growing at about 20 percent a year, in a country where two-thirds of the billion-plus population is under 35, and where an increasingly affluent middle class is shopping like never before.

Domestic firms have already stepped up investment in the sector, and more and more professionally managed chain stores are opening in Indian cities.