India is still a nation of small shopkeepers, where only 10% of total retail sales between $450 billion and $500 billion a year take place in modern stores. In September 2012, the government, led by Prime Minister Manmohan Singh, announced the reform to allow 51% foreign direct investment in supermarkets and department stores, as a part of an unexpected and ambitious reform package. Only a year ago, the government had to back down on a similar reform in the face of stiff opposition from politicians and small shopkeepers.
According to the details of the announcement, foreign investors need to meet a list of requirements and individual states have the right to opt out from the retail-sector reform. So far only ten states said they would allow global retail chains like Wal-Mart, Tesco and Carrefour to enter. Foreign investors are only allowed to operate in and near cities with populations of at least one million – there are 53 such cities. Foreign investors are required to invest at least $100 million and to buy 30% of their supplies in India.At least if we look to the example of Romania;
During 1997-2005, foreign chains rapidly became important players in the Romanian retail sector. Their employment increased from virtually zero to more than 18,900 in 2005, when they accounted for almost a quarter in total retail sales (see Figure 1).
We find that during this period the Romanian retail sector witnessed high rates of job churning and market reallocation, followed by a sizeable increase in labour productivity. Entry and exit played a critical role in the reallocation; 62% of employment expansion was due to entry of new firms, while 23% of employment contraction was accounted for by exiting firms. We document a sizeable (17%) increase in labour productivity in the retail sector and show that entry of new firms and expansion of more productive firms at the expense of lesser performers was the main driver behind this development.Which had the effect of increasing the productivity of Romanian manufacturing;
An alternative exercise focusing on eight Romanian regions suggests that the presence of a foreign chain in a region raises the productivity of the supplying industries by 3.8% to 4.7%.Pretty much as the textbooks draw it up.