Delhi wont have FDI in retail as AAP reverses Congress govt decision

Written by fe Bureau | New Delhi | Updated: Jan 14 2014, 07:27am hrs
FDI in retailNew Delhi accounts for a fairly large chunk of 12 pct of the organised retail market in the country and would have been an attractive catchment for any retailer.
In what will be a big blow to global multi-brand retailers making them even more wary about investing in India, the Delhi government has decided not to allow them to set up outlets in the capital. New Delhi accounts for a fairly large chunk of 12% of the organised retail market in the country and would have been an attractive catchment for any retailer.

We have written to the department of industrial policy and promotion withdrawing the Delhi governments earlier consent allowing FDI in multi-brand retail, a senior Delhi government official told FE on Monday.

The governments policy allowing overseas retail firms to pick up to a 51% stake in multi-brand retail firms in partnership with Indian players requires the nod of state governments. The previous Delhi government under Congress partys Sheila Dikshit had given its assent to foreign retailers setting up shop in the capital. With Delhi opting out, the number of states that have agreed to allow FDI in retail stands reduced to nine. So far, Congress/allies-ruled states of Maharashtra, Haryana, Manipur, Karnataka, Himachal Pradesh, Assam, Uttarakhand, Jammu and Kashmir and Andhra Pradesh have given their assent.

Since the government threw open the multi-brand retail to FDI in September, 2012, just one global player, the UK-based Tesco, has said it wants to do business in India it plans to buy a 50% stake in the Tata Groups Trent. A senior executive of Tesco said such changes were anticipated and didnt come across as a surprise. Tesco plans to set up its first set of stores in Maharashtra and Karnataka.

Not allowing FDI in multi-brand retail in Delhi has a dampening effect and reinforces the risk factor and foreign retailers will wait until the general elections, says Devangshu Dutta, CEO of Third Eyesight, who points out that even after the Tesco announcement, other retailers havent rushed in. Dutta adds that this move may result in more stores Gurgaon that can absorb Delhis consumption demand.

The Delhi governments stance on FDI in multi-brand retail is not too positive but nothing changes as permitting FDI in multi-brand retail was always a state subject. Although Delhi is a huge market, modern retail penetration has traditionally not been too high in the city, says Mohit Kampani, CEO, Spencers Retail.

This does not affect us as we are not seeking fresh foreign capital, Kampani said, adding that while Delhi is a big market, the bigger chunk lies in the neighbouring suburbs of Gurgaon (Haryana) and Noida (Uttar Pradesh). Cities like Bangalore and Hyderabad have the highest penetration of modern retail at close to 30%.

We have not seen much momentum in foreign companies entering India through FDI in multi-brand retail so far; so, the announcement is not of importance, Kishore Biyani, founder of Future Group, said.

Aam Aadmi Party strictly opposes FDI in retail because if it enters into the retail sector, then crores of small-scale Indian businessmen will come on the road, as they will lose their business and their livelihoods. The Walmart experience shows that farmers in the US were not benefitted, but deprived besides being a very bad employer, Arvind Kejriwal had told Delhi traders in 2012.

FDI in retail should have been decided through a referendum. The way the parties had behaved in Parliament was very unfortunate, Kejriwal had earlier said.

An AAP insider, however, said that the party has made its position on FDI in retail clear, but in case traders feel that they need to re-look into it, they could do a referendum through SMS, Internet polls and public meetings on the issue.