Wal-Mart announced today that it would end its six year old joint venture with Bharti Enterprises, an Indian firm. It is a sucker punch for those who hoped for greater international investment in India’s enormous retail market. Wal-Mart, like others before it, balked at India’s overly strict regulatory regime. NYT:
Despite India’s potential market of 1.2 billion people, no large foreign chains have formally applied to open multibrand retail stores since the government changed the law last year to allow them to invest more in the $400 billion sector previously reserved mostly for Indian companies.Wal-Mart’s Asia chief executive, Scott Price, said this week that the new law’s regulations requiring foreign retailers to buy 30 percent of products from local small and medium-size businesses are the “critical stumbling block” to opening its trademark consumer stores.
Interest in India’s disorganized $500 billion retail sector has been building in recent years, with companies like IKEA, Wal-Mart, Le Creuset and others hoping to open up wholly foreign-owned shops. But foreign retailers balk at India’s red tape and bureaucratic hurdles, especially the 30 percent locally sourced products rule, which analysts call a “non-starter.” These types of laws are intended to protect small-time Indian producers from big, bad foreign firms.Despite Wal-Mart’s decision to back out of its partnership with Bharti, there are signs that Delhi is (very) slowly relaxing its rules on foreign investment. The ruling Congress Party feels the need to appear more business friendly in order to stave off the pro-business Narendra Modi and his rival BJP party in the upcoming elections.[Wal-Mart image courtesy of Shutterstock]