India’s government has taken a strict line on foreign direct investment in multi-brand retail. While upholding bans on foreign investment in the sector, India’s organised retail sector remains one of the most undeveloped in the Asia-Pacific region.
Share of Organised Retail in Total Retail Sales Across Asia-Pacific, 2013
Source: Bain & Company, 2013
Essentially, opposition to foreign investment in retail stems from concerns over employment. Despite offering new jobs opportunities to workers in the sector, opponents reason that foreign operators will rely too heavily on imported goods, thus cutting out demand for products from Indian producers and hitting output and employment.
However, it is not totally clear that allowing foreign investment in retail will have such negative side effects. There are distinct benefits to be had from opening up the sector, which boil down as follows:
Foreign companies will invest in their back-end to improve delivery systems. We have previously blogged about India’s need for delivery infrastructure such as logistics warehouses. Allowing foreign investment will go some way to providing the 7.5-15 million sq.ft. of warehouse space that India requires.
Food safety standards will improve. Local brands will have to compete and adapt to higher retail quality standards that are largely commonplace for foreign brands used to working in markets with high safety standards.
Increasingly, it seems that domestic opponents are afraid of introducing higher competition to local operators. However, the development of modern, organised retail can be a force for good, particularly in terms of investment and quality standards. Maintaining barriers to investment is thus a short sighted view that does a disservice to India’s consumers.