The long-awaited liberalization of overseas investment norms in the retail industry may not have an impact on the business landscape and economic indicators such as inflation for another two-three years, said industry experts and analysts. The most immediate impact will be seen in existing joint ventures such as Bharti Walmart Pvt. Ltd, between Bharti Enterprises Ltd and the world's largest retailer Wal-mart Stores Inc., and Tata's Star Bazaar, which has a tie-up with Tesco Plc. A short-term impact may also be seen at India's largest listed retailer by revenue, Pantaloon Retail (India) Ltd, said industry experts.
The government on Thursday approved 51% foreign direct investment (FDI) in the supermar- ket sector and 100% FDI in single-brand retail with a few riders, paving the way for the entry of global firms such as Wal-mart, Carrefour SA and Tesco into one of the world's largest untapped markets. The decision led to an uproar in Parliament amid protests by the opposition that the move will destroy small, family-run neighbourhood shops.
India's central bank said the move may serve to rein in prices, the key focus of its monetary policy. “We hope it should also contribute to reducing inflation,“ Reserve Bank of India governor D. Subbarao told reporters in Chandigarh.
Trade minister Anand Sharma clarified the 30% sourcing stipulation on proposals involving FDI beyond 51%. This will have to come from “small and medium enterprises, village and cottage industries artisans and craftsmen“, the government has said.
It defined small industries as those with a total investment in plants and machinery of not more than $1 million (around Rs.5 crore). Sharma on Friday said this 30% sourcing will not be restricted to India because of the country's World Trade Organization obligations.
Opening up the retail business will likely lead to the entry of global companies, Aditya Birla Money Ltd said in a report on retail FDI on Friday. “We believe the key beneficiary will be the value-retailing segment of the retail industry,“ it said.
Large retailers Pantaloons, Reliance and Bharti Walmart have plans to open 25-50 stores a year, and others, including Shoppers Stop Ltd, Star Bazaar and Aditya Birla's More, 8-15 stores a year, said Shubhranshu Pani, manag- ing director (retail services) at Jones Lang LaSalle India (JLL), a property consultancy.These retailers are ready to re- draft their plans. The Bharti Walmart 50:50 joint venture has been operating in India for the past four years and has 15 cash-and-carry outlets under the BestPrice Modern Wholesale banner.
Shoppers Stop, which runs the Shoppers Stop department store and hypermarket chain HyperCity, may consider a tie-up for the latter. HyperCity has 12 stores and plans to open another 10 in the next three years.
The Kishore Biyani-led Future Group's retail arm, Pantaloon Retail, has aggressive plans to add 9 million sq. ft over the next three-four years to its existing footprint of 15.5-16 million sq. ft.
For retailers looking at entering India, the road will be tough, said industry experts.
The stipulation of a minimum $100 million in investment may make it difficult for overseas retailers to enter specialty formats such as music, mobile, electronics or even pharmaceuticals. According to a report by Boston Consulting Group, India, and the Confederation of Indian Industry, the size of organized retail in the country is close to $28 billion, or 6-7% of total retail.
The total retail market is estimated to grow to $1,250 billion by 2020, of which 21% will be in the organized sector. With added capital investments from overseas firms, the sector could have a significant impact on India's economy.
The organized retail industry could attract substantial investments by then. “We will get around $8-10 billion of fresh investments coming into the country over the next 5-10 years,“ said Biyani, founder and chairman of Future Group.
The government on Thursday approved 51% foreign direct investment (FDI) in the supermar- ket sector and 100% FDI in single-brand retail with a few riders, paving the way for the entry of global firms such as Wal-mart, Carrefour SA and Tesco into one of the world's largest untapped markets. The decision led to an uproar in Parliament amid protests by the opposition that the move will destroy small, family-run neighbourhood shops.
India's central bank said the move may serve to rein in prices, the key focus of its monetary policy. “We hope it should also contribute to reducing inflation,“ Reserve Bank of India governor D. Subbarao told reporters in Chandigarh.
Trade minister Anand Sharma clarified the 30% sourcing stipulation on proposals involving FDI beyond 51%. This will have to come from “small and medium enterprises, village and cottage industries artisans and craftsmen“, the government has said.
It defined small industries as those with a total investment in plants and machinery of not more than $1 million (around Rs.5 crore). Sharma on Friday said this 30% sourcing will not be restricted to India because of the country's World Trade Organization obligations.
Opening up the retail business will likely lead to the entry of global companies, Aditya Birla Money Ltd said in a report on retail FDI on Friday. “We believe the key beneficiary will be the value-retailing segment of the retail industry,“ it said.
Large retailers Pantaloons, Reliance and Bharti Walmart have plans to open 25-50 stores a year, and others, including Shoppers Stop Ltd, Star Bazaar and Aditya Birla's More, 8-15 stores a year, said Shubhranshu Pani, manag- ing director (retail services) at Jones Lang LaSalle India (JLL), a property consultancy.These retailers are ready to re- draft their plans. The Bharti Walmart 50:50 joint venture has been operating in India for the past four years and has 15 cash-and-carry outlets under the BestPrice Modern Wholesale banner.
Shoppers Stop, which runs the Shoppers Stop department store and hypermarket chain HyperCity, may consider a tie-up for the latter. HyperCity has 12 stores and plans to open another 10 in the next three years.
The Kishore Biyani-led Future Group's retail arm, Pantaloon Retail, has aggressive plans to add 9 million sq. ft over the next three-four years to its existing footprint of 15.5-16 million sq. ft.
For retailers looking at entering India, the road will be tough, said industry experts.
The stipulation of a minimum $100 million in investment may make it difficult for overseas retailers to enter specialty formats such as music, mobile, electronics or even pharmaceuticals. According to a report by Boston Consulting Group, India, and the Confederation of Indian Industry, the size of organized retail in the country is close to $28 billion, or 6-7% of total retail.
The total retail market is estimated to grow to $1,250 billion by 2020, of which 21% will be in the organized sector. With added capital investments from overseas firms, the sector could have a significant impact on India's economy.
The organized retail industry could attract substantial investments by then. “We will get around $8-10 billion of fresh investments coming into the country over the next 5-10 years,“ said Biyani, founder and chairman of Future Group.
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