India: new reform in the retail sector

The Indian government on November 24 finally gave the green light to one of the most important economic reforms undertaken by New Delhi in India's retail sector. The new law, long overdue, will revolutionize the retail sector: from now on, there will be no cap on FDI and foreign companies will be able to hold 100% in single-brand stores, and they will be able to control up to 51% in multi-brand (which also covers supermarkets). Until now, New Delhi did not allow foreign direct investment in the multi-brand and allowed foreign companies up to 51% of shares in the single-brand.

This is a historic decision that will fundamentally change the Indian retail landscape: in the case of single-brand stores, foreign companies will no longer need to establish partnerships with local companies, while in multibrand, they will be able to open their own stores after finding a local partner, no longer resorting to cash-and-carry.

This reform will transform some sectors, including the luxury, supermarket, and agricultural sectors, and will also have major repercussions from a social and economic perspective:

- Indian consumers will have more choice

- Indian retailers will be able to rely on the influx of money from abroad

- there will be the creation of new jobs and thanks to wider competition, a general lowering of prices

- there will be modernization of the industry and logistics networks, and improved product storage

- more transparency will be provided, especially in the agricultural sector, which has been dominated until now by middlemen

- local kirana shops will have to modernize to remain competitive

- there will be a drop in inflation, a real thorn in the side of the government

The Indian retail sector, whose turnover is around USD 450 billion a year, is thus poised to explode for good. It must be considered, however, how not all states are in favor of this decision: the governments of the states of Tamil Nadu, Uttar Pradesh, and West Bengal have already announced that they will oppose it and make sure to block the law. The situation is different for the states of Gujarat, Maharashtra, Rajasthan, Haryana, Andhra Pradesh, Punjab, and Orissa, which will support the reform.

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