Opportunity knocks for the new leader of 1.2 billion people;
Dozens of small shops [kirana] line the streets of Worli, a township in the southern part of India's commercial hub of Mumbai. Each shop is less than 5 meters square, but they sell a wide range of daily necessities, from grains and sweets to detergent and soap.The kirana are over 90% of India's retailers, because Indian law restricts the kinds of large stores the rest of the world enjoys, from entering and competing for the consumers' business.
Outgoing Prime Minister Manmohan Singh proposed in September 2012 allowing foreign multi-brand retailers, including supermarkets, to enter the Indian market. But the proposal was fiercely opposed by small and midsize business operators, mainly kirana owners, who make up the key supporters of Singh's Indian National Congress party. The government responded by setting stiff requirements for foreign retailers, such as procuring a certain amount of products from local suppliers, that have effectively closed the door to India's retail market.So the new broom will sweep away the old ways?
The Bharatiya Janata Party, which enjoyed a landslide victory in the recent general election, has promised sweeping economic reform. But even though [BJP leader Narendra] Modi told The Nikkei last November he would not oppose foreign retailers entering India, the BJP's manifesto released in April made it clear that his party is against the idea.What will it be, the power of concentrated, focused, entrenched special interests, or Wal-Mart with its concern for the well-being of literally a billion Indians?
Opening the door to foreign retailers would bring far-reaching benefits. An estimated 20-40% of vegetables and other perishables in India never make it to market because they spoil during distribution. Major foreign operators can bring the infrastructure and know-how for refrigerated logistics that India lacks. Additionally, middle-income consumers are no longer satisfied with the selection available at kirana shops. Some industry sources say the BJP's opposition to foreign retailers was merely a campaign tactic and the party will change its position once it assumes power.
Foreign retailers are keen to gain a foothold in India's market of 1.2 billion people. British supermarket operator Tesco submitted to the Indian government an investment plan for retail operations last December. Wal-Mart Stores announced in April a plan to expand its wholesale business. Scott Price, president and CEO of Walmart Asia, says he is excited about his company's growth plans in India.
The Singh government considered the opening-up of the general merchandise market the centerpiece of its economic reform initiative, but it failed to make that happen. Retail market liberalization will test the Modi government's commitment to economic reforms.Then there is the Indian railroad;
India's railway system dates back to 1853, during the British colonial period. Today, state-owned Indian Railways employs 1.36 million people and operates 12,000 passenger and 7,000 cargo services daily over a railroad network stretching 64,000km.
....Economic losses owing to inadequate transportation infrastructure, including fragile rail and road systems, exceed 2 trillion rupees each year, according to the Associated Chambers of Commerce and Industry of India. The organization warns that without action, those annual losses will balloon to 7 trillion rupees by 2020.And electricity;
Andrew Brandler, former CEO of Hong Kong's largest electricity company, CLP Holdings, does not mince words when describing the power business in India: "Frankly, the country is in a mess when it comes to fuel supply, not only coal but gas."
....Brandler, who now is a nonexecutive director, lashed out at the Indian energy industry at press conferences in Hong Kong, blaming the underutilization on the "total inability of Coal India and the Indian government on full allocation of coal." His criticism places the blame directly on the state-owned coal giant and the government for failing to live up to its promise of providing the right amount and quality of coal. Things are starting to improve now that CLP has been given permission to use imported coal to offset Coal India's late deliveries, but the plant is still not at full capacity.Don't forget labor;
Over 40 laws govern different aspects of labor, including regulations implemented before India gained its independence from Britain in 1947. The Industrial Disputes Act that came into force in the same year as independence requires companies with 100 employees or more to obtain government approval for withdrawing from local operations and closing down offices. The purpose of the legislation is to ensure continuity of employment, but it is very difficult to be granted permission to close such a business. This law often works to dissuade companies from entering the Indian market.
Modi has identified the development of manufacturing industries as the core of his growth strategy. However, the country's labor regulations and practices may become the biggest obstacle for the new Modi government in pushing through much-needed economic reform.Should be interesting times.