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Hostility towards FDI will not put off internationals

By Kacey Culliney , 20-Dec-2011

Internationals won't be put off investing in India, following FDI postponement
Internationals won't be put off investing in India, following FDI postponement

India’s foreign direct investment (FDI) law for its retail sector was put on hold earlier this month following political opposition, but this will not impede internationals entering, according to an analyst.

The decision to open up India’s $450bn retail market, allowing 51% FDI for internationals, reached a stalemate earlier this month with pressure mounting to protect local players on coalition allies as well as the opposition party.

Clive Black, head of research and retail analyst at Shore Capital Stockbrokers, told FoodNavigator-Asia.com that the decision to postpone the law will not put internationals off.

Black said the market is very complex administratively and that, “any internationals interested in India are very alive to the reality; they have done their homework.”

It is a complex situation that needs to be addressed with sensitivity and “consumer confidence is of course important. Retailers are not going to go into India against consumer will.”

He noted that when internationals enter the country, it will usually be motivated by a desire to bring something positive to the market and its consumers.

Parmjit Singh, head of the India Business Group at international law firm Eversheds, said that while internationals will be “very disappointed about what has happened”, due to vast opportunity sustained by a large population and growing middle-class, they will not be put off investing in the country.

Political and trade voices

Singh explained that it is a political issue, driven by state elections in February next year and general elections in late 2013.

Black said that political opposition is understandable as “India has an immature and fragmented retail industry with a lot of independent, small players that have political backing.”

Local opposition is a “manifestation of the immaturity of the Indian market,” and is based on a fear that FDI will lead to large international retailers having a larger market share than local players, he said.

Singh noted that this case has to be considered in different segments as there are those opposing but also many in favour of the law being implemented, including farmers.

The National Advisor Consortium of Indian Farmers Association, (CIFA) has said that it will create better marketing prospects for their products as well as improved income opportunities.

Farmers will welcome FDI, Singh said, as it will ensure produce gets to the end consumer because, “logistics and cold storage facilities are very poor at the moment and there is a lot of wastage, with a lot of produce not reaching consumers at all.”

Similarly India’s food processing industry welcomes FDI, with Rakesh Kacker, secretary in the food processing ministry, stating that it will help the sector by bringing modern infrastructure and technology.

Singh stated that internationals will more than likely continue to lobby the government through partnerships already established in India and through trade associations.

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