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July 6, 2006

INDIA: Government slow to alter FDI restrictions

As reports circulate that the Indian Government is about to put the highly politicised and emotive issue of foreign direct investment in the retail sector on the back burner, the world’s largest retailer is chomping at the bit to make in-roads into this emerging market.

As reports circulate that the Indian Government is about to put the highly politicised and emotive issue of foreign direct investment in the retail sector on the back burner, the world’s largest retailer is chomping at the bit to make inroads into this emerging market.


Wal-Mart’s Beth Cack told just-food yesterday (5 July) that the company is eager to capitalise on the opportunities it has identified in the Indian market. “Our view is that India is an outstanding emerging retail market. We do hope to have the opportunity to operate and compete there,” she said.


But Wal-Mart and other global retailers are prohibited from entering the Indian market by regulations governing foreign direct investment (FDI) in the retail sector. Earlier this year, Indian legislators decided to allow up to 51% foreign ownership of single-brand companies, however global retailers, such as Wal-Mart, are still blocked from entering the market.


Hopes that this situation would change were aroused by news that the government was debating the possible liberalisation of these restrictions, with an eye to fostering the development of a modern retail sector. However, reports have surfaced that the issue of market liberalisation, which has sparked widespread debate within the country, will be sidestepped by ministers. Legislators are pinning their ambition to modernise on investments from Indian entrepreneurs, such as Reliance, Bharti and Pantaloon.


Nevertheless, if and when the market is opened to international competition, Wal-Mart is ready to fill the breach and the retailer hopes that this will happen sooner rather than later.


“In various other emerging markets we have seen the benefits that international competition has brought to consumers. We hope that the Indian Government will see the value that this could bring Indian consumers and allow ourselves and other international retailers to enter the market at some point in time,” Cack concluded.

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