Indian state bars foreign supermarkets in latest blow for chains

Sun Feb 2, 2014 5:01am EST
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By Tony Munroe

MUMBAI (Reuters) - The Indian state of Rajasthan has barred foreign direct investment in supermarkets, an ominous sign for global retailers who covet India's vast but fragmented retail sector if the country's main opposition Bharatiya Janata Party (BJP) comes to power nationally in upcoming elections.

The BJP is considered to be more investor-friendly than India's ruling Congress party but opposes foreign direct investment in supermarkets because of its impact on small shopkeepers. It unseated Congress in Rajasthan's state elections in December.

The Associated Chambers of Commerce and Industry of India criticized Rajasthan's policy reversal, made on Friday, saying it would "dent and shake" global investor confidence.

"If one party reverses the decision of its rival dispensation upon change of guards, the policy and political risks for global investors would definitely increase in India, scaring them away," D. S. Rawat, secretary general of ASSOCHAM, said in a statement.

In late 2012, the government of Prime Minister Manmohan Singh opened India's $500 billion retail industry to foreign operators, allowing companies such as Wal-Mart Stores Inc (WMT.N: Quote) and Tesco Plc (TSCO.L: Quote) to own majority stakes in Indian chains for the first time.

However, India left it up to individual states to decide whether or not to allow foreign retailers.

So far, fewer than half of India's 28 states have adopted the policy, making it harder for retailers to exploit economies of scale by setting up sourcing and cold storage networks that could serve stores in contiguous states.

Stringent local sourcing rules and worries that the policy might be overturned have also kept most global supermarket chains on the sidelines.   Continued...

Customers walk outside a Walmart store in the Porter Ranch section of Los Angeles November 26, 2013. REUTERS/Kevork Djansezian