Global supermarkets wary of fine print on India invite

Fri Nov 25, 2011 9:16am EST
 
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By Matthias Williams and Abhijit Neogy

NEW DELHI (Reuters) - Global supermarket chains welcomed a long-awaited invitation from India to invest in the country's $450 billion retail market, but they fear the small print may keep a lid on investment in the short term.

The government on Thursday approved 51 percent foreign direct investment in supermarkets, paving the way for firms such as Wal-Mart Stores Inc, Tesco and Carrefour to enter one of the world's largest untapped markets.

Shares in Indian retailers jumped -- bucking the weaker stock market trend -- in anticipation of interest from those big foreign retailers.

The move may breathe new life into the government of Prime Minister Manmohan Singh, who ushered in free market reforms 20 years ago but has been bogged down by corruption scandals and was starting to be seen as a lame duck.

As well as appealing to India's burgeoning urban middle class the reform will draw in much-needed new investment to a sputtering economy. Policymakers say spending on cold-storage and warehousing will ease supply-side pressures that have driven inflation close to a double-digit clip.

"It's important not only for raising overall growth, but also for containing inflation and improving the quality of life for over 50 percent of the population," said central bank Governor Duvvuri Subbarao.

Investment could exceed $5 billion in the next 5-7 years as hundreds of hypermarkets are opened, said Vijay Karwal, head of retail at the Royal Bank of Scotland.

"There may be a degree of 'catch up' with foreign flows into India retail possibly starting to match, if not exceed, those into China as development picks up pace," he said.   Continued...