Though the retail sector got a major boost on last Friday with the Centre’s announcement on allowing foreign direct investment (FDI), its implementation is set to remain a challenge.

Rating agency India Ratings is of the view that FDI in retail will help retailers de-leverage their balance sheets, but the complexities involved could delay the process, with benefits not expected to accrue in the next two to three years.

It said that foreign investors are expected to partner with established retailers in the Indian markets with footprints in larger cities and towns, given the complexity and dynamics of the consumer markets.

Meanwhile, consulting firm Pricewaterhouse Coopers (PwC) said in a report that though FDI will help the Government bring down fiscal deficit from the current 6 per cent to 4 per cent, if implemented at the earliest, retailers will face challenges in re-organising their corporate structure at state-levels and create separate legal entities before attracting FDI investments.

“Restructuring will be a very important aspect. We need to see whether the states supporting FDI will allow the restructuring norms and if yes, then how,” said Rachna Nath, Leader (Retail), PwC.

Besides, such splitting of retail business into separate legal entities to enable funding from foreign retailers may reduce the operational benefits of logistics and sourcing, said India Ratings.

To the extent the retailers are able to split businesses into legal entities, the benefit of deleveraging may accrue only to corporates who receive the FDI funding, it added.

While certain aspects of related infrastructure, such as setting up and implementing the agricultural supply chain mechanism, may require approvals at the state level, procedural delays may prevent timely implementation. The time-bound implementation of guidelines and sole accountability for the foreign partner may increase the regulatory risks to such joint ventures, the report said.

>Priyanka.pani@thehindu.co.in

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