Mumbai, Aug 9 - Wal-Mart Stores Inc.'s final entry into India after a long delay may fuel intense opposition to foreign retailers, forcing the government to move even more cautiously and slowing the ambitions of other incomers.
Protests against Wal-Mart and even newly-opened stores by India's Reliance Industries Ltd. are a lightning rod for Indians fearful of modern corporate retail and its impact on family-run stores, as well as for politicians with an eye on national elections in 2009.
And they have given foreign retailers who want a bite at India's $350 billion retail pie pause for thought.
Foreign companies entering the Indian market have struggled with a restrictive investment policy which limits their ownership in certain sectors like retail, banking and aviation.
Even before Monday's Wal-Mart deal with Bharti Enterprises was announced, protests were planned for this week by hawkers, farmers and trade unions against the "back-door entry of Wal-Mart", a campaign they say is modelled on the "Quit India" call against the British.
"India is too big a market to ignore, so I expect continued and increased interest from foreign retailers, but I do not expect the floodgates to open," said Manoj Ladwa, chief executive of MLS Chase Solicitors in London.
"What foreign retailers need is for the government to set out a clear process towards further liberalisation. It's not so much the pace, as the direction that needs to be properly defined."
Wal-Mart and Bharti Enterprises said on Monday they would form an equal joint venture for cash-and-carry, or wholesale, and back-end supply chain management, more than eight months after Bharti first said it would partner the world's biggest retailer.
Wal-Mart, which plans to significantly step up its sourcing of locally-made goods, stressed the venture's investments in the supply-chain will benefit farmers and small manufacturers.
But Carrefour and Tesco have shelved their plans until there is greater clarity on policy, and Wal-Mart's entry is not going to convince them to rush in now.
"They are probably waiting to see how Wal-Mart does, how it handles the opposition, and for some of that to die down," said said Umesh Madhavan, an analyst at Euromonitor in Singapore.
"The opposition is not going to die soon as it's become a big political issue. In fact, there's more opposition now, and I don't see rules being relaxed at least for another couple of years, with national elections coming up," he said.
POLITICAL TIGHTROPE
Modern retail's share of India's booming retail sector is only about 3 percent, so it is particularly attractive for foreign retailers looking to offset sluggish sales in their home markets, but any entry faces political opposition.
In February a letter from Sonia Gandhi, the head of the Congress party that leads the ruling coalition, to the prime minister expressing concerns about "the Wal-Mart effect" on shopkeepers was leaked by Indian media.
The main communist party, an ally of the ruling coalition, has urged the government to establish a licensing system for retail chains and prevent the entry of foreign firms.
Other reports have said that states may limit the size and number of stores, which would deprive retailers of the benefit of economies of scale and hurt their profit margins.
Foreign single-brand retailers can now take up to 51 percent in a joint venture with a local firm, while multiple-brand firms are limited to wholesale and franchise or licence deals.
Several luxury brands, including Chanel and Louis Vuitton PA, have set up shop in India, but among multiple-brand retailers only Metro, Shoprite Holdings and Marks & Spencer have a limited presence.
Overseas expansion is seen as key to Wal-Mart, which has a small presence in Asia: it quit South Korea last year and its Japan unit has posted five straight years of losses.
In India, food and grocery makes up nearly two-thirds of the industry and provides easy pickings for big retailers because the lion's share of it is in the hands of small shops, and building an efficient supply chain can quickly boost returns.
Bharti Wal-Mart Pvt. Ltd. aims to open 10 to 15 wholesale centres in seven years. Both Reliance Retail and Bharti Retail have said they could partner small shop owners who can become franchises, but that is not enough for some.
"Millions of hawkers and small shop owners will lose their jobs and their livelihood," said K.L. Bajaj, general secretary of the Centre for Indian Trade Unions in Mumbai which is backing this week's protests.
"We are completely opposed to foreign firms entering India and we want regulations to control how Indian retailers source, sell and price products to protect jobs and consumers," he said.
Others are confident the government will not be deterred.
"India has a reputation as being a cautious but committed reformer," said Ladwa, who advises clients to take a long-term view of Asia's third-largest economy.
"India is not known to renege on changes to the regulatory mechanism on foreign direct investment, therefore I would expect the government to stay true to this reputation," he said.