Fence-sitting retailers keen to exploit India’s demographic dividend may have to wait till the outcome of the general elections due in mid-2014, and may even have to temporarily shift their agenda to other emerging economies.
The reason: political logjam over whether foreign direct investment (FDI) in retail is good, bad or ugly will only be clear once it is clear who gets the mandate to form the new Government.
And, if the recently concluded Assembly elections are anything to go by, the Bharatiya Janata Party (BJP) seems to be in favour to lead a coalition at the Centre, which may prove to be a dampener for international retail majors.
So what makes the BJP’s win in State elections ‘a not-so-nice’ proposition for retailers. For starters, key BJP leaders, including Murli Manohar Joshi and Rajnath Singh, have strongly supported revoking FDI in retail if their party is voted to power.
Last year, the Government allowed 51 per cent FDI in multi-brand retail, subject to prior approval and fulfilment of strict conditions and the party had been vocal in its opposition to it in both Houses of Parliament. Of the five States where elections were held recently, Congress had a majority in only one – Mizoram. In the bigger States such as Madhya Pradesh, Rajasthan and Chhattisgarh, BJP made a clean sweep. In Delhi, the party was neck-in neck with a political greenhorn – the Aam Aadmi Party.
The States that saw BJP being voted back to power have been high on the retailers’ agenda to start operations. Delhi and Rajasthan have been favoured on account of skilled manpower, land availability for both stores and warehouses and sheer logistics. So far, only 12 States have conveyed approval for FDI in multi-brand retail. These include: Assam, Andhra Pradesh, Haryana, Himachal Pradesh, Maharashtra, Manipur, Karnataka, Uttarakhand, Jammu & Kashmir, Daman & Diu, Dadra and Nagar Haveli, Rajasthan and Delhi.
Uncertainty At present, States can implement this policy, but this discretionary power entails an element of uncertainty — the States can also impose additional conditions.
Almost all global retailers such as Carrefour, Walmart, Metro operate cash-and-carry outlets in either Delhi or Rajasthan. Several of these had planned to enter Madhya Pradesh, too. Industry watchers note that several other States that had been pro-retail, will also be going to polls in 2014. And if the mandate is again in favour of BJP, then most retailers may be forced to look elsewhere.
Global brokerages and real estate consultants point out that FDI was supposed to create huge space intake after retail FDI was approved in 2012. However, there has hardly been any offtake so far.
A Cushman & Wakefield’s retail reports says that 64 per cent (or13 malls) of the total expected supply in the top eight major cities was deferred in the first half of 2013.
The realty consultant noted that the trend of mall deferment could be attributed to the cautious approach of retailers, among others.
While international retailers are optimistic about their growth plans in India, they are cautious about opening new stores and are carrying out due diligence to understand the market before making any commitment. With political uncertainty looming large till general elections are held, the best way out for them seems to be to just ‘wait and watch.’