Indian Love Song

Wal-Mart Stores Inc. (Bentonville, Ark.) has announced a joint venture with Bharti Enterprises (New Delhi), a leading Indian cellphone operator, to open hundreds of Wal-Mart-branded superstores across India over the next five years, starting in 2007.

The move takes the world’s larges retailer closer to one of the potentially most lucrative frontiers for American retailers, who had previously been stymied by the Indian government’s protectionist rules barring foreign ownerships of Indian retail. The Indian retail industry remains largely closed to foreign capital out of fears that Western retailers would gobble up mom-and-pop shops, the bread and butter for millions of Indian families.

Just 3 percent of Indian consumers shop in large Western-style stores, compared with 20 percent in China,

“It is the last and a very big frontier,” said Bharti chairman Sunil Mittal. “Brazil is done. China is done. This is the last Shangri-la of retail. Where will Tesco or Wal-Mart get their growth? Here.”

Bharti, India’s leading cellphone company, has no experience in discount and grocery retailing, but it does have a vast retail distribution network, it understands India’s emerging middle class and it has a good cash flow.

“Bharti and Wal-Mart make a formidable combination,” said Arvind Singhal, chairman of KSA Technopak, a retail consultancy based in New Delhi, told The New York Times. “One is the world’s largest retailer and the other is amongst India’s most aggressive companies.”

Wal-Mart has seized upon two loopholes in India’s protectionist policies: Foreign retailers are allowed to operate through franchisees, and they are also permitted to invest their own capital in wholesale shops. Mittal said that the American retailer would open franchise stores owned by Bharti while investing its own money in wholesale outlets.

The Indian retail industry is expected to grow from $300 billion a year today to $637 billion by 2015. The share of the overall retail market in India held by large retail stores is expected to grow in the next five years from 3 percent to 18 percent.