UPDATE 4-India government warms to Wal-Mart’s retail push

* Opening up to FDI to help farmers – food processing min

* Food min says hopeful of opening up retail in 2011

* Wal-Mart CEO says to buy directly from more India farmers

(Adds planning commission support paragraphs 6-7)

By Ruchira Singh

NEW DELHI, Oct 26 (BestGrowthStock) – India sounded a positive note
on Tuesday on opening up to foreign direct investment in the
massive and politically sensitive multi-brand retail sector by
global players like Wal-Mart (WMT.N: ) and Carrefour (CARR.PA: ).

India’s retail sector is largely closed to foreign firms and
favours small family-run stores, with 51 percent of FDI allowed
only in the single-brand retail sector. Multi-brand retail is
restricted to cash-and-carry or wholesale outlets.

Opening up the sector would ease massive supply bottlenecks
that have contributed to keeping inflation stubbornly high in
India.

Food Processing Minister Subodh Kant Sahai backed calls by
Wal-Mart, the world’s largest retailer, to open up parts of the
tightly-regulated $450 billion retail sector and hoped this
would happen next year.

“I am in favour of it because this will give market-driven
farming to farmers,” Sahai told reporters on Tuesday at an event
attended by visiting Wal-Mart Stores Chief Executive Mike Duke.

India’s Planning Commission also backed the proposal, Deputy
Chairman Montek Singh Ahluwalia said on Tuesday.

“There is absolutely no reason why we shouldn’t allow
foreign direct investment,” the powerful adviser told reporters.

Still, it is not the first time the government has hinted at
relaxing the rules. Over the past few years the government has
moved forward on reforms only to backtrack in the face of local
opposition.

Wal-Mart, in partnership with India’s top telecoms group
Bharti Enterprise, operates four cash-and-carry outlets in
India.

India, which along with China is leading annual economic
growth among major economies, is increasingly a hot investment
destination for global companies keen to tap into the massive,
decentralised yet heavily regulated market.

POLITICAL MINEFIELD

An estimated 40 percent of India’s farm produce spoils
before reaching consumers — an alarming statistic in a country
where millions go hungry. Cold storage is scarce and expensive.

With family-run stores accounting for over 90 percent of
domestic trade, the issue remains a political minefield for a
ruling Congress party fearful of losing its populist appeal
through potential job losses and protests from farmers.

Many local retailers still oppose relaxing restrictions for
fear that global titans will drive local stores out of business.

But Prime Minister Manmohan Singh’s government has begun to
speak more positively recently on relaxing the rules, hoping the
benefits of such a move — creating thousands of jobs and
reining in inflation by curbing waste — would douse political
opposition.

India’s commerce and industry ministry in July released a
discussion paper on opening the sector, but it steered clear of
suggesting changes to the existing investment cap.

Singh’s political boss and Congress party chief Sonia Gandhi
has so far publicly been reluctant to embrace the changes, part
of a general slow pace of reforms that has frustrated many
foreign and local investors.

Wal-Mart’s Duke told reporters on Monday he was getting a
“very positive” feeling from officials about further opening up
the sector to FDI. The company has for years sought greater
access to Asia’s third largest economy.

Duke said on Tuesday that Wal-Mart would step up direct
sourcing in India from farmers, aiming to raise this to 35,000
small and medium farmers by the end of 2015.

“We are currently buying fresh products direct from over 600
farmers and are working with them to increase their yields and
best practices,” he said.
(Additional reporting by Rajesh Kumar Singh and Manoj Kumar;
Writing by Ruchira Singh and Paul de Bendern; Editing by
Alistair Scrutton and Stephen Nisbet)

UPDATE 4-India government warms to Wal-Mart’s retail push