The number of applications received by Government for starting single-brand retail: 63. The number of applications received for starting multi-brand retail operations: zero.
These two numbers clearly indicate that the Government has not been able convince foreign retailers to invest in multi-brand retail, despite opening up the sector for investment nine months ago.
The new clarifications issued by the nodal agency for framing foreign direct investments rules on Thursday seem to have made the situation even more water-tight, according to experts.
No drastic measures
Analysts tracking the sector say that the Government doesn’t want to introduce any drastic measures that may make it unpopular in the general elections set to take place in 2014.
The issue had witnessed political opposition before it was approved by Parliament in September 2012. But for multi-brand retailers wishing to invest in India, the new clarifications are nothing to cheer about.
Abneesh Roy, Associate Director, Edelweiss Securities, says, “The clarifications are not what retailers wanted. Investing in back-end has become water-tight. Companies were keen to go the franchise route but that has been that thwarted in the new clarifications. Several domestic retailers were looking for fund infusion from global partners but that too will have to wait as foreign retailers cannot acquire existing entities.”
Most foreign retailers who have a presence in India through joint ventures declined to comment saying that they were reviewing the policy.
Vivek Gupta, Partner, BMR Advisors, says, “The Government has adopted a cautious approach while issuing the clarifications. While any large scale relaxation was unfair to expect, some areas could have seen more liberal interpretation. The fact that the franchise route has been ruled out, or wholesale-retail combinations have been frowned upon, are disappointing. Clearly, the Government wants to avoid controversy for now and build comfort that the brave retail liberalisation step was the right one, before welcoming multi-brand retail more openly.”
Issues such as the 30 per cent sourcing norm from SME sector, saying that sourced goods should be non-agricultural and should be sold in the new front-end stores and not through acquisition of existing stores, too, are tricky for foreign retailers. Acquisition of existing retail stores not being allowed to be a part of the mandatory $100-million investment can also be deterrent for companies, as they may want to acquire existing stores of joint venture partners.
Delay
Most retailers were asking for FDI in e-commerce to be allowed, but the Government has said a firm 'no' to that. Going by the clarification, foreign retailers are expected to delay their India-entry strategy.
Mohit Bahl, Head of Retail, KPMG, says that the conditions are stiff for bringing in FDI. From the Government’s perspective, they have to balance it. There were lots of questions in the minds of retailers. However, the spirit of the policy remains.”