26.1.13

Of FDI in Retail....


Foreign retailers Walmart and Tesco have indicated that they will not rush into opening stores in India despite the government aggressively courting them to set up multi-brand outlets. During a meeting with commerce & industry minister Anand Sharma in Davos, British retail giant Tesco sought clarifications on sourcing from small scale units and rolling out of back-end infrastructure for foreign players entering the retail space.
The move is seen as a precursor to the supermarket chain deciding on entering the Indian market after the government allowed 51% foreign direct investment in the multi-brand retail segment.
Similarly, Doug McMillon, president and chief executive of the international operations of Walmart, told the minister that the global giant is studying the conditions before making a final announcement on its India plans.
Tesco has a tie-up with the Tatas, while Walmart has opened cash-and-carry outlets, in partnership with Bharti, that cater to wholesale buyers such as restaurants, canteens and kirana shops. The clause stipulating at least 30% sourcing from local small and medium enterprises is being cited by retailers as a major hurdle to investment into India, although most of them will end up procuring from the domestic market.
In fact, the government had dropped the clause for single-brand retail after intense lobbying by IKEA, the Swedish furniture firm, which has now sought government approval for investing over Rs 10,000 in India.
There is also the requirement on foreign retailers to invest at least $100 million with 50% meant for creation of back-end infrastructure. Consultants, however, said the lack of political acceptability and the move to leave it to states to decide on allowing foreign retailers has not comforted foreign players as they fear that they may have to shut shop after a change of regime. Several political parties ranging from BJP to the Left, Trinamool Congress and the Samajwadi Party have said they will not permit foreign supermarkets in states ruled by them, leaving only the Congress ruled states as potential locations for opening store.
As a result, only single brand retail aspirants, where 100% FDI is permitted, have evinced interest in setting up shop. But the Centre is keen that some of the international players make use of the opening up and is rolling out the red carpet. During his meeting with Tesco chairman Richard Broadbent Sharma said foreign investors will be provided hand holding and invited a team of company executives for consultations with his officers.

The government appointed a one-man panel to probe Walmart’s recent disclosures regarding lobbying activities. The investigation, which is expected to be completed within three months, will probe if the retail giant undertook any activities that were in violation of Indian laws. The government was forced to launch an investigation following demand from opposition.

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