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Could India’s recent economic reforms pave the way for increased penetration from UK businesses?

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To our shame, we in the UK often view India chiefly as a provider of low cost services. In recent years, we have come to associate calling our mobile phone providers with calling our Indian cousins across the other side of the world, though this is a sad thing to associate such a vibrant and progressive country with. Current developments, however, may increase trade the other way and change the way that we interact with one of the world’s largest marketplaces, for better or worse.

Recently, a re-energized Manmohan Singh, the Indian Prime Minister, has been trying to push through previously-abandoned economic reforms aimed at easing the dangerously stultified impasse in the Indian economy. There has loomed large a real danger that the lack of action and direction in leadership, brought about by infighting and indecision at the top, would have calamitous consequences including the downgrading of the Indian credit rating to ‘junk’ status; a disaster made all the more real by the plights of multiple major European economies.

Whatever the outcome of these reforms, it seems as though the Prime-Minister and his government have begun to win their battle in getting them through parliament. Mr. Singh has long cut an embattled figure, suffering at the hands of his many detractors, but his latest action seems to have rather caught his opponents on the hop. Slowing growth has caused one-time opponents of the reforms to change their tune or risk appearing stick-in-the-mud.

Amongst a raft of reforms planned, perhaps the most intriguing development for us in the UK concerns the relaxation of rules concerning foreign supermarket giants and their interaction with the Indian markets.

Previously limited by law to the role of wholesalers, multi-national giants such as Tesco and Walmart were only allowed to sell directly to Indian retailers. Now, however, the law is to be changed to allow them to become the major shareholders in local retailers and thus, sell directly to the Indian public for the first time.

The aim is that in transforming India’s retail market in this way, inflation (which currently stands at over 7% and rising) will be tamed and thousands of jobs will be created. One of the most pressing related issues is that of the farming infrastructure; a lack of refrigerated transport, appropriate warehousing and associated other issues sees and estimated 40% of goods spoiling on the way to market. It is hoped that the relaxation of the laws will result in long-term investment into supply-chain problems and benefit India in the long term as well as short.

Rules will be in place to ensure that at least 30% of goods on offer must be procured from local Indian sources but this shift-change still opens up the Indian marketplace to the West in a way that has previously not been open for consideration. Opponents of these measures argue that this only spells trouble for the little man, the smallholding Indian farmer and the local shop owner. True enough, in the UK, the opening of a new Tesco store in an urban area often spells the end for small businesses.

What impact this will have on businesses in the UK and beyond is still open to speculation but even access to these markets is an intriguing prospect. Through worldwide companies such as Tesco, Walmart and Carrefour, manufacturers and producers may have a new channel into a country with a rapidly-growing middle class.

What is true, however, is that any visible results will be some time in coming. Currently, Walmart is best placed to take advantage of the developing situation after having spent considerable capital in building its wholesaling operation in the country, while Carrefour and Tesco are battling falling profits and consumer spending as a result of the downturn.

Even with a currently favorable exchange rate, expansion into foreign territory costs serious money, even more so in the case of India and the obstacles that it presents. Tesco, however, have moved to strengthen their bond with Tata, while WalMart is partnered with Bharti in a bid to alleviate these difficulties. Nevertheless, these events may well have long and lasting impacts on the trade dynamic between India and the West.

Quite how this will manifest though is not, as yet, clear…

[About the Author: Nick Worpole is a writer interested in global economics. Market data for his articles is sourced from Further examples of his work can be seen at searchstarz.com]

  1. Residential property in Agra says

    Hi today mostly persons know that India’s recent economic reforms pave the way for increased penetration from UK businesses? the reason behind it is government of india is taking interest and making law to control businessesmen in India.

  2. Altaf Rahman says

    A nice article, giving insight into how the outside world thinks about India.
    Here I would like to mention the ground realities.
    Until a day before Chidambaram (further) liberalized Forign trade policy, the issues in mind of every Indian, non Indian were these – Current account deficit, trade deficit, inflation, increase in Gold imports, policy paralysis and most important of all, scams every where. No one believed that this govt has moral right to rule the country for one more minute. BJP was gunning for MMS head, nothing less.
    The monment Chidambaram allowed FDI in retail, the scene changed dramatically. BJP vanished from media, every one was talking about ‘India shining’ once again.
    The ground realities are still there.
    We still have growing current account deficit, trade deficit. To add to the difficulties, mansoon failed.
    Still just on the strength of FDI in Retail, every one is forgetting our weaknesses.
    Agreed that FDI in retail brought positive mind set temporarily to markets, FIIs pumped in few billion dollars and temporarily Rupee strenghened. This does not mean we are out of woods.
    Come March, once again govt will show increased trade deficit, sell more PSU stocks.
    Having said that I do not want to leave aside few rare positives. Deisel prices raised and gold imports brought down. These are the biggest achievements of this govt. I appreciate it.
    India can only shine in long run if we get rid of the present political system now.

    Just my two paisa :)

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