Feature Analysis MarketWatch: Global Round-up

Reliance: changing tack

India's Reliance Industries is encountering stiff resistance from some quarters to its retail division's
aggressive expansion plans. To help appease protests, Reliance is introducing a new format which
will not sell fresh produce in some states. These developments do not bode well for the international
grocers who are eager to develop their presence in India.

Reliance, India's largest conglomerate, has unashamedly touted its ambition to become India's leading retailer.
The group intends to invest over $5 billion in a multi-format expansion plan to create a nationwide chain of
stores - ranging from c-stores to hypermarkets - occupying 100 million square feet by 2010. This is a highly
ambitious goal - but with retail sales in India forecast to grow by 72% to reach $517.6 billion by 2010 - the lure of
the opportunities mean Reliance's considerable investment is sure to pay off handsomely. Since opening its first
cluster of stores in Hyderabad, Reliance now has more than 170 stores across 18 states.

But all is not going to plan. Reliance has recently come across an increasing number of hurdles hampering its
progress. Examples include delays in being granted a license in West Bengal, opposition in Kerala to setting up
contract farming co-operatives and protest marches organized by traders loyal to anti-big business in
Tamilnadu. Protests reached new levels recently when vegetable traders vandalized three stores in Jharkhand
state. Reliance is hoping to open in Mumbai in a matter of weeks and the traders are bracing themselves for a
battle with the chain.

The increasing opposition is due to a combination of factors. Margins in the wholesale produce trade are
reported to be extremely healthy - and Reliance's ambitions to create a farm-to-fork initiative will enable it to
capture a greater share of these margins and eliminate the middle man. The expansion of Reliance and other
large retailers also raises the prospect of mass unemployment. Mumbai's vegetable union has over 150,000
members, for instance. The small kiranas are these people's sole livelihood and there is every danger that the
expansion of these big players will result in many people being left behind in India's widely touted economic
revolution.

Sensing the scale of opposition, Reliance has announced a new format - Reliance Super. These stores, which
range from 4,000-10,000 square feet, will offer grocery, health & beauty, clothing and stationery, but no fruit or
vegetables, in a bid to appease the protestors. But Reliance is not the only problem facing the small Indian
vegetable farmers. Wal-Mart is due to open its initial store in the first quarter of 2008, and will also be a target for
both trade protestors and some quarters of the government - who are openly questioning the impact of big
retailers on the economy. These developments are not a positive sign for multinationals such as Carrefour and
Tesco - who are also eager to capitalize on the immense growth opportunities India offers.

The Indian government has to tread a fine line. On the one hand, it needs to be seen as opening up the sector
to aid and maintain the impressive economic growth it has enjoyed. But on the other, the livelihoods of millions
of small traders - a vital component of the economy - are at risk. The scale of a potential backlash is obviously
apparent, and the government has appointed an independent think-tank to assess the impact of the growth of
retail giants, such as Reliance and Pantaloon, on the economy. Though we do expect FDI barriers to eventually
be removed to allow international grocers unhindered access into India, domestic traders will not give up without
a fight, and the timescales involved have the potential to drag on for longer than some envisage.

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