- The Washington Times - Wednesday, January 25, 2006

NEW DELHI (AP) — India has decided to let foreign brands open their own stores in a step toward liberalizing the country’s booming retail trade — a move that should pave the way for big names like Adidas and British retailer Marks & Spencer to set up shop.

But retail giants like Wal-Mart Stores Inc. and Target Stores Inc. — which sell dozens of different brands — will have to wait because the government decided Tuesday to let only single-brand retailers open stores in India.

Global retailers have been lobbying India to open up its $200 billion retail market — currently dominated by more than 12 million “mom-and-pop” shops — but opposition from communist coalition partners and domestic businesses has forced the government to move slowly.

The World Trade Organization’s General Agreement on Trade in Services does not require member countries to open their retail sectors to foreign competition.

Until now, retailers such as Adidas-Salomon AG were required to sell products through franchises or wholesale trading.

The new rules will allow foreign companies to own up to 51 percent of businesses in India, provided they gain government approval and sell only their own goods, Commerce Minister Kamal Nath told reporters after the Cabinet meeting.

Mr. Nath said the move would neither hurt small shopkeepers nor lead to job losses — fears raised by left-wing politicians.

“This is aimed at attracting investment, technology and best global practices as also catering to the demand of such branded goods in India,” he said.

Rising middle-class incomes and increased demand for branded products are driving the businesses of the companies expected to take advantage of the new rules.

“They will now invest directly in our country which will increase our [income from foreign investments],” Mr. Nath said.

Communist parties, whose support is crucial to the government’s parliamentary majority, criticized the decision, saying that even such a limited opening could pave the way for stores like Wal-Mart, which have long been criticized in the United States and Europe for driving smaller retailers out of business.

“We have been opposing it. I don’t know why the government has to take such a decision,” said D. Raja, secretary of the Communist Party of India.

Analysts said the Cabinet decision was typical of the style successive governments in India have adopted in opening any sector to foreign competition.

“India’s economic reforms remain a story of incremental changes at a glacial pace,” said Rajeev Malik, a Singapore economist with JP Morgan & Co.

The Cabinet decision “falls well short of allowing the entry of foreign, multibrand retailers like Wal-Mart,” Mr. Malik said. “There continues to be stiff resistance from politicians and local businesses toward greater foreign competition in the retail sector.”

The announcement came a day before the World Economic Forum’s annual meeting in Davos, Switzerland, where India’s growing economic clout is scheduled to be a key topic. Business and government leaders from around the world will attend the five-day meeting in Davos.

Mr. Malik said the Cabinet decision was likely timed to coincide with the Davos meeting, “but the crack is unlikely to result in a sizable jump in foreign direct investment in the [retail] sector.”

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