Fallout From India's Failed Foreign Retailer Plan

Linda Wertheimer speaks to Andrew MacAskill, Bloomberg News India correspondent, about New Delhi's failure to adopt a new law that would have allowed multinational retailers into the country and, hopefully, transform an inefficient and outdated industry. It's a huge political setback for the government, and a huge disappointment for retailers who've been licking their chops at the prospect of tapping India's consumers. But Walmart still has plans to expand in India.

LINDA WERTHEIMER, HOST:

Wal-Mart and other big, international retailers have been licking their chops over the possibility of entering India's huge consumer market. But their hopes were dashed this week. India's government shelved a plan to allow foreign retailers into the country. It was a huge political defeat for India's Congress party, and for the government's plans for economic reform.

To find out why, we called Andrew MacAskill. He is a reporter based in New Delhi for Bloomberg News. Andrew, thanks you for joining us.

ANDREW MACASKILL: You're welcome.

WERTHEIMER: First of all, let me ask you if this affects Indian shoppers. Are consumers there crying out for big-box stores?

MACASKILL: Well, I mean, with the growing middle class, there's definitely a desire for more choice, which big retailers would offer. At the moment in India, it's mainly controlled by small, independent stores that really only have a few aisles. So there's not much choice there. And opinion polls over the last few months have been showing overwhelmingly that people are very in favor of foreign direct investment in retail for a number of reasons - one, that they want more choice and two, that they think it'll help bring inflation down.

WERTHEIMER: Is that what the government thought would happen? Is that why the Congress party thought foreign retailers would help the Indian economy?

MACASKILL: Yeah. I mean, the government's main argument has been this is the structural reform that India needs. Particularly over the last year, food inflation has been over 10 percent. That's been affecting everybody, and particularly - predominately the poor, because about three-quarters of India's population live on less than $2 a day.

So, by allowing foreign retailers in, you would bring this sort of sophisticated, back-end operation that would help take the food from the field to the shops. Because at the moment, about 40 percent of India's vegetables rot before they're sold. That contributes to food inflation. So, the government's argument was being if we get the foreign retailers in with their expertise, they'll help reduce the waste.

WERTHEIMER: I understand that the government didn't actually need a vote in Parliament to make this happen, that it could have been done by executive order. Why did they back down?

MACASKILL: Well, I mean, this is kind of an explosive issue. After agriculture, retail is the second biggest employer. And this has been debated for the last seven years, and the government finally took a decision. But - and the aftermath of that, the last two weeks the Parliament has been completely stalled. Rival political parties have completely blockaded Parliament. And as a result, the government was forced to back down.

And the main reason for this is that it wasn't just opposition parties who were against this plan. Their two biggest allies were also against the plan. And as a result, they were left with the choice whether they either let Parliament continue to be blocked, or they back down. So they decided just to back down and hopefully, Parliament will now reopen, and they'll be able to push through other important policies.

WERTHEIMER: So do you think this is a setback for the Indian economy, not to have these sort of efficient retailers in the country?

MACASKILL: Yeah. I mean, it's a massive setback. If the government had passed this, they would have grown more confident of our passing a series of other reforms. But as they're being comprehensively humiliated in trying to pass this, that means that they are not going to attempt to carry out a much wider reform agenda, which is very bad for India.

WERTHEIMER: What about the big retailers? There's a British firm; there's Wal-Mart, from the U.S.; a big French firm. How much does this matter to them?

MACASKILL: Well, I mean India, in many senses, is a last large, untapped market. I mean, everybody's desperate to come in; one, because India is the second biggest country in the world - this economy's booming - but also because the market is largely unsaturated. Only about 5 percent is controlled by chained companies. So as a result, this really is one of the most crucial places they want to be right now and will certainly - won't let this opportunity pass.

WERTHEIMER: Andrew MacAskill is a correspondent for Bloomberg News in New Delhi. Andrew, thank you very much.

MACASKILL: Thank you.

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