In July 2006, it was reported that Wal-Mart Stores Inc. (Wal-Mart), the
world’s largest retailer with annual revenues of US$ 312.4 billion, had
received permission from the Indian government to set up two liaison offices
in India.
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These offices, expected to become
operational by October-November 2006, would explore market
opportunities for Wal-Mart in India and also focus on
expanding its supplier base. Though these offices could not
undertake business operations in India, analysts saw this as
part of the retail giant’s long-term plans for establishing
operations in India.
The Indian retail sector is in the midst of a boom. A report
by KPMG, India and the Federation of Indian Chambers of
Commerce and Industry (FICCI), estimated the retail market
in India to be around US$ 200 billion, of which organized
retail accounted for US$ 6.4 billion. Organized retail was
expected to increase to US$ 23 billion by 2010. |
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A healthy 7%-8% economic growth, increasing disposable incomes among the
middle class, changing consumer tastes and preferences, and a young
population with a propensity to spend, were some of the key factors driving
growth in the organized retail market in India. Given the attractiveness of
the Indian retail sector, foreign retailers like Wal-Mart, Carrefour SA,
Europe’s largest retailer, and Tesco Plc, the UK’s largest retailer, were
keen to enter this growing market, despite the Indian retail sector being
closed to foreign direct investment (FDI). In February 2006, the Indian
government had announced its decision to allow FDI of upto 51% in single
brand retailing. Wal-Mart had said that India was high on its priority and
that it was closely monitoring the government’s policy on FDI in the retail
sector.
In July 2006, the Investment Commission suggested that 49% FDI be allowed in
the Indian retail sector without any restrictions on the number of outlets
or location of stores. The Indian retail boom and the Investment
Commission’s suggestions renewed the debate on the issue of allowing FDI in
the retail sector.
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