Far from opening its vast retail market to foreign investors, India is looking at how to prevent large domestic players from displacing mom and pop stores, a sensitive issue in a market dominated by unorganised retailers.
"It is not (about allowing) foreign direct investment, the issue is that of large versus small retailers," Commerce and Industry Minister Kamal Nath said at the first Pravasi Bharatiya Divas New York 2007 on Sunday evening while replying to a question on when India would open up its over $330 billion retail market to foreign investments.
His comments ring alarm bells for Indian corporate retail players, who are already being shackled across states.
Last month, the Uttar Pradesh government ordered the closure of corporate-run food retail stores citing law and order problems, while Kerala has not permitted opening of western-style food retail stores in the state.
Asked if this meant large retailers would have to be prepared to close shop anytime the government feels like, Nath said: "That is not under my ministry. Ask the consumer affairs ministry."
While this is so, India oddly ranked World No.1 in the AT Kearney Global Retail Index 2006. Organised retailers account for roughly 3 per cent of the retail market, with the rest made up of mom and pop outlets and neighbourhood kirana (grocery) stores.
He said the government wants to promote only incremental growth in the retail sector, but did not elaborate how it would find out the number of small retailers that have been displaced by big corporates.
Industry estimates suggest that over the next four years, organised retail in India will receive investments in excess of $25 billion from domestic and foreign players, taking the size of organised retail to $ 75 billion.
"This is a very contentious issue." The minister, however, said foreign investors were free to put their money for creating logistics or providing back-end operations an area where the government allows 100 per cent FDI.
He said he had informed US retail giant Wal-Mart that they would get more B2B for their back-end operations in India than retail customers in most other countries where they operate. Wal-Mart has joined hands with Indian conglomerate
Bharti Enterprises for the latter's retail venture. Nath also humbly asked foreign investors to bear with the government if there were any delays in clearing investment proposals, as it was facing most situations for the first time. Case in point: The $5 billion Citigroup, Blackstone, IDFC and IIFCL fund for financing infrastructure projects.
"Citigroup and Blackstone came to us and said they want to set up this fund, we said yes. But then there was no system in place for such a fund (which had to then be created)," the minister explained.
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