It’s wait-and-watch for Wal-Mart, Tesco, Carrefour…

01 Feb,2013

By Rasul Bailay & Chaitali Chakravarty


Four months have passed since the government braved intense opposition to allow foreign supermarkets to enter India, but it has not received a single investment proposal so far as global retailers play wait-and-watch and seek more clarity about the conditions imposed on their entry.


The delay is beginning to irk the government, which almost put its survival at risk over this controversial issue. A top executive with a global retailer said that in a recent meeting with a senior commerce and industry ministry official, he was asked when his firm would submit its proposal for opening multi-brand retail stores in the country. “We have done our bit, when will you do yours?” the official bluntly told him.


“The authorities seem to be under some kind of pressure, after going through so much to open this sector. But we need some clarifications before we start here,” said the retail executive, who did not wish to be named.


In September last year, the government allowed foreign supermarkets to own up to 51% in local ventures, but imposed stiff local sourcing conditions as well as investment restrictions.


Kishore Biyani

Kishore Biyani, who owns India’s largest homegrown retail house, The Future Group, said these riders are preventing electronics, fashion garments, and other retailers from firming up their India plans. “How can they source 30% of their goods from small-scale industries? Or even invest $50 million in the backend over three years? Fashion or electronics does not require that kind of investment in the backend,” he said. Biyani is looking for foreign partners for his retail businesses.


The government has imposed two significant riders on foreign retailers. First, they will have to compulsorily source one-third of the products they sell from small and medium enterprises whose investments do not exceed $1 million in total. Second, they will have to invest at least $100 million, half of which has to go into backend infrastructure over three years.


Foreign retailers, including Wal-Mart, Tesco and Carrefour, are seeking clarification on these riders. Sir Richard Broadbent, chairman of Tesco, met Commerce and Industry Minister Anand Sharma in Davos last week and sought clarity on the conditions imposed on the retail FDI policy. Walmart International CEO Doug Mcmillon also told the minister that his company was “excited about India”, but was currently studying the conditions. “We are looking at clarity on those conditions. All those conditions have certain implications on the overall business viability,” Sameer Barde, a spokesperson for UK supermarket chain Tesco in India, said.


“Each one of them has to be clearly understood and then only we will be able to take a call on when to proceed with our plans.” A Walmart spokesperson in India said the company continued to study the requirements placed on FDI in multi-brand retail to better understand how its business would operate in a complex environment. Some retail experts, however, feel that foreign companies are deliberately going slow in India.


“There is no real intention (on the part of large retailers) to enter the country at the moment. Had it been so, they would have lobbied hard with the government to ease rules like IKEA did,” said Harminder Sahni, MD of retail consultancy firm Wazir Advisors. IKEA, the world’s largest home furnishing retailer, was also confronted with strict local sourcing conditions under the single-brand retail policy. But it was successful in convincing the government to dilute these norms.  Abhishek Malhotra, partner at consultancy firm Booz & Co, said global retailers would wait for six to nine months to see how things pan out.


“They are watching the political landscape and trying to figure things out,” he said. The vigorous resistance of BJP, India’s principal opposition party, to the entry of foreign supermarkets has come as a surprise to many observers and analysts. The party forced a vote in Parliament on the issue, and if the minority government of Manmohan Singh had been unable to muster the numbers, it could have decisively crippled the UPA coalition.


Even now, the opposition of BJP and other political parties continues to be significant as the Centre has left it to state governments to decide whether they would allow foreign retailers to open stores in their respective states. Almost two dozen of India’s 35 states and union territories, including key states like Tamil Nadu, Karnataka, Gujarat and Uttar Pradesh, have decided not to allow foreign retailers.


As per the FDI policy spelled out in September, global retailers such as Walmart and Carrefour are only allowed to open their stores in 53 Indian cities with population of a million or more. Due to the opposition from most states, retailers can only open stores in 18 of these 53 cities. In addition to India’s FDI policy and political complexities, global retailers are grappling with their own set of problems.


Even though Walmart Stores has an understanding with Bharti Enterprises (the two companies are 50:50 partners in a wholesale retailing venture), the US retailer is currently preoccupied with its sweeping worldwide anti-bribery investigations that have brought negotiations and expansion in India to near-standstill. Britain’s Tesco Plc, which has a supply chain and retail technological partnership with the Tata Group, is busy fixing its struggling business in the home market before committing anything to India, said a person familiar with the UK retailer’s plans.


Carrefour SA, which currently operates a fully owned cashand-carry venture in India, is bullish about the country’s $500-billion annual retailing market, but has been unsuccessful in finding a local partner for the last seven years.


Source:The Economic Times

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