Region Watch/Country Profiles

India

India Lets Overseas Retailers Operate Without a Local Partner

India has abandoned a rule against foreign single-brand retailers operating stores without a local partner, paving the way for global companies, including Starbucks Corp. and Ikea.

The government ratified a Nov. 24 cabinet decision to raise the ownership limit to 100 percent from 51 percent for single- brand, Trade Minister Anand Sharma said in a statement. The new rules take effect immediately and require the companies to use smaller Indian companies for at least 30 percent of procurement, he said.

Wal-Mart Stores Inc., Carrefour SA and other foreign chains are still excluded from India’s $400bn retail market after an attempt last year to change the law failed.

“This is a welcome move with a clear potential to lift the general mood in the economy,” Rajan Bharti Mittal, managing director at Bharti Enterprises, Wal-Mart’s Indian partner for wholesale hypermarkets, said in an e-mailed statement. “We hope the initiative is a precursor to further liberalization in the sector in the days to come.”

Pantaloon Retail India Ltd., India’s largest retailer, gained in Mumbai trading after the announcement. The stock rose as much as 10 percent, the most since Nov. 25, while Shoppers Stop Ltd. surged 20 percent. Trent Ltd., which has a franchise agreement with Tesco Plc, rose as much as 6.9 percent. India’s benchmark Sensitive Index rose 0.4 percent.

Waiting for Multi-Brand

“People think that this would lead to a positive stance on multi-brand retail soon,” Sameer Narang, an Mumbai-based analyst with HDFC Securities Ltd. said in a telephone interview. “My opinion is that it’s not coming any time soon, given the way things went the last time the government tried to introduce it, I doubt a lot of traction will be seen on it.”

Starbucks would compete in India with operators including Lavazza SpA’s Barista Coffee Co. and closely held Cafe Coffee Day. The Seattle-based coffee chain said in November it intended to open its first store in India this year.

“Ikea welcomes the decision from the Indian government to allow 100 percent FDI in single-brand retail,” Nivedeeta Moirangthem, the furniture and housewares retailer’s India spokeswoman said in an e-mailed statement. India is a very interesting potential retail market for the Ikea Group.’’

Suspended Opening

Singh’s allies and other parties opposed a decision allowing retailers selling more than one brand, unveiled in late November, saying it would hurt local mom-and-pop type stores. The government suspended the policy Dec. 7.

“India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment,” Singh, 79, said in a Dec. 14 interview.

He said he would renew the multi-brand retail initiative after regional elections this year.

Singh, whose championing of free-market policies two decades ago helped India become the second-fastest growing major economy, faces allegations that the government lost $31 billion by unfairly awarding mobile-phone service permits in 2008 to ineligible companies and over contracts for hosting the 2010 Commonwealth Games.

The benchmark BSE Sensitive Index dropped 25 percent last year, while the rupee slumped 16 percent versus the dollar.

Source: The Washington Post

India Cuts Growth Forecast to 6.9%

India (recently) cut its economic growth forecast for the current fiscal year to 6.9%, which will be the slowest in three years, as aggressive monetary tightening at home and a shaky global economy crimped industrial activity. Asia’s third-largest economy had expanded a much healthier 8.4% in the last fiscal year ended March 31.

For this fiscal year, the government had initially projected a 9.0% expansion, which was toned down to between 7.25% and 7.75% as recently as in December as global economic uncertainties slowed Indian exports and 13 rounds of monetary tightening by the central bank in less than two years dented local demand.

Sujan Hajra, chief economist at Anand Rathi Securities, said it is time for the Reserve Bank of India to loosen its monetary policy to support the economy since the government has limited room to step up spending due to its expanding fiscal deficit. The Reserve Bank has cut the percentage of cash that banks need to keep in reserves by half a percentage point in January in a step seen as the first toward easing the monetary stance after a long fight against inflation. But, it still refrained from lowering the policy lending rate, cautioning against risks of a revival in inflationary pressures over the next few months.

Mr. Hajra said the central bank could take steps to support growth as “the direction of monetary policy is already clear. It is an accommodative policy.” He forecasts a 0.75-1-percentage-point cut in the policy lending rate and a 0.50-1-percentage-point reduction in banks’ cash reserve ratio by October.

The slowdown this year is mainly due to weaker growth in manufacturing and farm output, show estimates from the ministry of statistics and program implementation.

Farm production is expected to grow 2.5%. That is sharply slower than the 7.0% increase recorded in the previous year when plentiful rains had boosted agriculture output after a drought year.

The latest data projects manufacturing output this year at 3.9%, compared with a 7.6% increase a year earlier, indicating the direct effects of higher lending rates and slowing global demand.

Source: Excerpted from The Wall Street Journal