Global retail biggies pause, will check life after polls

11 Jul,2013

 

By Rasul Bailay & Chaitali Chakravarty

 

The government resolutely faced a vote of no-confidence in Parliament last year over its decision to allow entry to foreign supermarkets, but it is unlikely to reap any benefit as global retail chains have decided to wait for the outcome of state polls later this year and 2014 general elections before pledging investments.

 

Three executives who work closely with foreign retailers said these chains will assess the post-election political landscape and then make their moves. BJP’s virulent opposition to their entry has made them nervous, and they don’t want to be caught in no-man’s land if the party comes to power and scraps the multi-brand retail policy. While Narendra Modi, BJP’s presumptive PM candidate, has the reputation of being pro-business, he has banned the entry of foreign retailers in his state Gujarat.

 

“If India can go after Vodafone after so many years, I would say hypothetically anything is possible,” said a retail analyst with a foreign consultancy firm who asked not to be named as he advises global retailers. He was referring to the government’s decision to retrospectively amend its tax laws and slap a multi-billion-dollar demand on the UK’s Vodafone Plc, despite the Supreme Court ruling in favour of the company.

 

Foreign retailers are currently allowed to open stores in 12 states. Of these, 11 are Congress-ruled while the 12th, Jammu & Kashmir, is ruled by a National Conference-Congress coalition. But two of the states – Delhi and Rajasthan – will go to polls in the next few months.

 

“We are concerned about the state polls because the recent clarifications have given local governments sweeping power to change policy,” said a person familiar with the plans of Tesco Plc. “What if BJP comes to power in Delhi and says retailers need to source 50% locally, instead of the existing 30%?”

 

The UPA government at the Centre is expected to shortly announce a fresh set of clarifications that could further ease entry norms for foreign retailers. Commerce & Industry Minister Anand Sharma, who has led the government’s drive to open up the retail sector to foreigners, recently met with global and local retailers in Delhi. He is expected to meet top Walmart executives during his visit to the US this week. But for now, it looks unlikely that Sharma or the government are going to attract the fistful of dollars they are looking for.

 

Walmart’s Indian arm, that is currently embroiled in the internal problems that led to the recent departure of its chief executive Raj Jain, is focusing on a widespread compliance procedure of the US Foreign Corrupt Practices Act, cost-cutting at the wholesale venture, and to make the business viable even as expansion plans have been stalled since November.

 

Bharti Walmart’s interim Chief Executive Ramnik Narsey has asked department heads to come up with ideas to trim costs even as he focuses on cleansing operations.

 

A Walmart India spokeswoman said the retailer continued to work with the government to better understand the rules for foreign direct investment. “We are still very early in the process on FDI, but are excited by the opportunity in front of us,” she said.

 

The spokesperson for Tesco, the UK-based retailer, said the company was waiting for further clarifications before deciding on its next steps. Carrefour, the French retail chain, declined comment.

 

While foreign retailers want to analyse the political alignment post the general election, some are cautiously optimistic that there will not be a dramatic about-turn in India’s policies. “BJP cannot afford to go back on the policy as it would sent an extremely negative signal to global investors,” said an executive who works closely with one of the global supermarkets.

 

For the past two decades, successive governments have shied away from opening up the country’s multi-brand retail sector to foreign investments due to opposition from small vendors as well as top politicians, as they feared liberalisation of the sector could jeopardise the livelihoods of millions of small and marginal retailers.

 

However, in September 2012, the Congress-led government went ahead and opened up the sector and even went to the extent of risking its survival on the issue. But about 10 months later, the government has not received a single investment from a foreign company.

 

Source:The Economic Times

Copyright © 2013, Bennett, Coleman & Co. Ltd. All Rights Reserved

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