Indian retailers are hopeful that the new BJP-led Government will do a volte face on its decision to oppose foreign direct investment (FDI) in multi-brand retail.
Once the new Government is formed, it might re-think its strategy as bringing down inflation is going to be of prime concern. FDI is expected to help improve supply chain efficiencies for retailers, thereby bringing down the cost of goods.
Last year, UK-based retailer Tesco became the first foreign player to apply for entering India’s multi-brand retail sector through a proposed equal JV with Trent Hypermarket, a Tata Group company. Considering that Tesco already has a back-end tie-up with the Indian retailer, it was natural to propose a front-end FDI-based deal to open multi-brand retail stores. But getting final approval is in the hands of the new Government.
Tesco’s deal is going to be a test case for other retailers who are waiting in the wings for similar ventures.
“As of now, there is not enough clarity but Tesco is going to be a test case for the retail industry. We could consider an international tie-up for our big box format under HyperCity. FDI in multi-brand is still in theory. We have to wait and see how the new Government views it,” said Govind Shrikhande, Managing Director, Shopper’s Stop.
But such FDI-led JVs may not immediately take off. “While Tesco’s FDI proposal was quickly approved, in this scenario it is doubtful that Tesco would be bringing in the money. The FDI retail policy is still flawed and is not going to be priority for the new Government,” said Devanshu Dutta, CEO of Third Eyesight.
In 2011, the UPA Government had taken a Cabinet decision to allow foreign retailers to own 51 per cent in the multi-brand retail. At that point of time, Kishore Biyani, Chairman of the Future Group, had said: “It’s a win-win-win situation for us. There will be better infrastructure, especially at the farm side of the business, create new job opportunities and bring in capital. More retailers will create more choices for consumers. There will be $8-10 billion of fresh investments coming into the country over the next 5 to 10 years.”
But since then, there has been a flip-flop on the FDI policy with many States opposing the policy.
While there may be no short-term benefits for the retail industry, in the long run, the new Government may change its outlook and end the uncertainly surrounding the FDI policy.
“The new Government will weigh the pros and cons of its decision to oppose FDI in retail as it would like to have a progressive face in terms of inviting more international companies to come in. It would look into consumer behavior, spending and investments required in supply chain and realise the benefits of having clear policy measure in retail,” said Saloni Nangia, President, Technopak.