AAP's victory could be retail FDI's loss

AAP, set to form the government in Delhi, had said it was opposed to foreign direct investment in multi-brand retail.

The election victory for Arvind Kejriwal-led Aam Aadmi Party (AAP) could be a defeat for international multi-brand retailers looking to enter India.

The AAP, set to form the government in Delhi, had said it was opposed to foreign direct investment (FDI) in multi-brand retail. If the national capital does not allow FDI in multi-brand retail, then Mumbai might be the only metro where such players can enter.

Retailers generally would be interested in opening outlets in metros because of the advantages. “Metros offer good opportunities because people are more savvy in terms of going out and (the situation is more favourable) in terms of concentration of population,” explained Gaurav Gupta, senior director, Deloitte India.

The Centre, while allowing FDI in multi-brand retail, had allowed state governments to clear the proposals for their respective states. Only 12 states and Union territories have supported FDI in multi-brand retail.

Among those who have opposed FDI in multi-brand retail are West Bengal, where the Mamata Banerjee-led Trinamool Congress is in government, and Tamil Nadu, where the J Jayalalithaa-led AIADMK is in power. This shuts out Kolkata and Chennai to the retailers. Uttar Pradesh and Gujarat had also opposed the move. Though Andhra Pradesh and Maharashtra were for FDI in multi-brand retail. The Congress-run states would go to elections in 2014.

The Bharatiya Janata Party (BJP) had voiced its opposition to FDI in multi-brand retail. In the recent Assembly elections, the Congress had lost Rajasthan to the BJP and also failed to win power in Chhattisgarh and Madhya Pradesh.

“Most of the states are governed by parties opposed to FDI in retail,” said Arvind Singhal, chairman of retail consultancy Technopak Advisors. “Even in Maharashtra and Andhra Pradesh, it is uncertain if the Congress would come back to power. So, international retailers planning to enter India are in a difficult situation.”

On Delhi, he said: “Delhi forms a significant part of consumer spending. So, retailers would stand to lose a lot if they do not have access to the city-state.”

Gupta of Deloitte said: “Most large international retailers are in the wait-and-watch mode. After the general election, a different picture may emerge; you will get to know where opportunities in FDI in retail are and where you do not have these.”

Apart from the political uncertainty, retailers looking at Mumbai would also have to deal with space shortage and high realty prices.

“Tesco or Walmart will not rent a property for Rs 200 or Rs 250 a square feet,” said a senior executive of a Mumbai-based retailer. “They would certainly look at Rs 40-45 per sq ft. They would not enter Mumbai city unless there are very strong business reasons.”