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India hesitates on foreign retail

Dec. 6, 2011 at 1:13 PM   |   Comments

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JALANDHAR, India, Dec. 6 (UPI) -- International retailers hoping to establish a presence in India have been put off, business leaders in India said.

Officials of two opposition parties said discussions with Finance Minister Pranab Mukherjee concluded with an agreement to hold off on opening India up to international retail firms, which Prime Minister Manmohan Singh promoted in November, The New York Times reported Tuesday.

Foreign firms are allowed to open wholesale outlets in India -- businesses restricted to sales to grocery stores, retail outlets and restaurants. But the policy is frustrating to international firms, customers in India who might benefit from better prices, and politicians, like Singh, who want to modernize India's retail system.

Mukherjee is expected to make an announcement Wednesday on policy changes, the newspaper said.

Advocates of allowing firms like Walmart to open retail stores in India say 10 percent food inflation could slow down and distribution of goods could become more even. Currently, 94 percent of retail in India is managed by small shops.

In comparison, 80 percent of sales in China and 64 percent in Brazil is done through small shops. In the United States, 15 percent of retail is managed by local shops, the newspaper said.

Further, with its antiquated distribution system, roughly 33 percent of some domestic Indian foods rot before they can be sold.

Farmers could also benefit. Walmart, which operates 15 wholesale outlets in the country in partnership with Indian firm Bharti, tends to pay local farmers better prices than domestic retail stores. PepsiCo, which buys potatoes in India for Lays chips, pays 11 cents per kilo for potatoes, nearly twice the local price.

In a country with 175 million farmers, "We need more competition," said Avtar Singh Sidhu, a farmer who has sold potatoes to PepsiCo and vegetables to Walmart.

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