Why are global retailers in wait-and-watch mode for India?

While the controversy over allowing or banning foreign direct investment (FDI) in multi-brand retail trading (MBRT) is keeping every political party on its toes before the coming Lok Sabha elections, foreign multi-brand retailers seem to be avoiding India, at least for now. 

Commerce and Industry Minister Anand Sharma had claimed that after Tesco, there would be one more foreign retailer entering the MBRT space. However, the claim did not materialise. 

It seems the nodal agency for FDI – Department of Industrial Policy and Promotion (DIPP) – has not received a single application post British retail major Tesco’s $110-million proposal, a top official has told Business Standard.

Another official, who was involved in formulating the FDI policy for MBRT said,“Nobody has sent any application after Tesco. It looks unlikely now.”

There were reports that French retailer Carrefour might be second in the queue.

But it seems now, that there never was a queue even after the government relaxed certain riders that came with the FDI policy in MBRT.

Apparently, AFTER the fiasco with American retail major WalMart, the government had been scrambling to rope in another big name.

But the efforts only resulted in further embarrassment.

Tesco Plc has announced plans to invest $110 million in collaboration with Trent Hypermarket Limited.

It plans to open three to five stores here every financial year. Proposal mentions that joint venture will operate in India through a chain of stores under various banners, including Star Bazar, Star Daily and Star Market, with a tag line — A Tata and Tesco Enterprise.

Last year in August, the government had even tried to simplify the policy further hoping to attract global retail chains.

It relaxed some of the policy conditions pertaining to the 30 per cent mandatory sourcing clause, investment in back-end infrastructure and permitting to enter any state in the country irrespective of the population there, but only if that particular state wants to allow it. 

On the other hand, international retailers are now wary of the fact that if the next government is formed by the Bharatiya Janata Party-led NDA, then the policy might be withdrawn altogether.

A top official with an international retail chain, who refused to be identified said,“Situation is just not conducive now. Nobody knows who is coming into power in the next couple of months and what will be their economic policy. It is better to wait and watch." 

Last month, BJP’s prime ministerial candidate and Gujarat Chief Minister Narendra Modi gave a jolt when he spoke in favour of FDI in MBRT, stating that the move will not impact small and unorganised retailer of the country, quite contrary to the BJP’s stand.

Similarly, other political parties like the Aam Aadmi Party and Trinamool Congress, are also opposed to the idea.

Some of the legal aspects of the FDI policy in MBRT are still ambiguous, the cause of another irritant for retailers.  

This emerged after the BJP-led government in Rajasthan and AAP-led Delhi government opposed the entry of foreign retailers in their respective states.

As a result, the ministry of commerce and industry is now seeking legal opinion on the issue in order to confront a situation where a state government might refuse FDI in MBRT even if the previous government has allowed it.   

India's multi-brand retail story so far..  

Nov 24, 2011  The Cabinet Committee on Economic Affairs allows 51 per cent FDI in multi-brand retail trading (MBRT) but later puts it on hold due to widespread protestS from opposition parties, traders and farmers.  

Sep 14, 2012  FDI in MBRT with 51 per cent cap finally rolled out with stiff policy riders; some of the controversial ones being - mandatory investment in back-end infrastructure, compulsory 30 per cent local sourcing and restriction on cities for opening the stores.  

Aug 1, 2013  The government relaxes the three contentious norms –

(i) On the 30 per cent mandatory sourcing clause, the government expanded the definition of micro, small and medium enterprises. Now, those companies that have a total investment of $2 million in plant and machinery will also be eligible for sourcing of ‘manufactured and processed’ products.

(ii) The government mandates 50 per cent investment in fresh back-end infrastructure. This will be restricted only to the first tranche of $100 million, which is the mandatory initial investment amount, while subsequent investments into back-end will depend on the retailer.

(iii) Retailers were allowed to open stores in all such states that have agreed to implement FDI in multi-brand retail even if such states do not have cities with a population of more than 1 million. States were now given the choice of city for the location of the retail stores. 

Oct 9, 2013  US retailer Walmart Stores Inc quits six–year old Indian retail partner Bharti Enterprises. Walmart tied up with Bharti in 2007. The move spelt doom for the country’s multi-brand retail segment

Dec 17, 2013  British retailer Tesco sends its application to Department of Industrial Policy and Promotion through Tesco Overseas Investment Ltd for investing $110 million in collaboration with Trent Hypermarket Limited, a Tata group enterprise. It plans to open three to five stores here every financial year. Proposal mentions that joint venture will operate in India through a chain of stores under various banners including Star Bazar, Star Daily, Star Market with a tag line stating: A Tata and Tesco Enterprise.  

Dec 30, 2013:  Foreign Investment Promotion Board approves Tesco’s proposal. The proposal needs final approval of the Cabinet