Nothing to celebrate

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SummaryNo application from any global retailer in multi-brand retail so far; clarity on norms and uncertain political environment cited as issues

A year after the government allowed FDI of up to 51% in multi-brand retail, no global multi-brand retailer has so far filed an application with the Foreign Investment Promotion Board, which approves foreign direct investment (FDI) applications. Clearly, retailers are awaiting more clarity from the government, or even waiting for the general elections next year.

On September 20 last year, India allowed FDI, in what it called multi-brand retail, through the joint venture route. The foreign company could hold a maximum 51% stake in the venture, with the rest being with an Indian partner.

When the government opened its doors to foreign retailers last year, it was gung-ho that retailers like Walmart, Carrefour, Tesco would immediately set up shop here. However, the companies waited for close to a year for clarity on the norms, which finally came in August this year. But by then, the economic and political conditions were not so conducive, forcing global retailers to wait for better times on both fronts.

While Walmart spokespersons say the company is excited about India, even as it awaits clarity on FDI norms, there is speculation it might be mulling an exit from the country over the issue of it breaking existing laws in India when it made an investment in Bharti.

UK’s Tesco is also on the same ground, preferring to wait until the dust settles.

A Tesco spokesperson told FE, “The company is awaiting clarification from the government before deciding on the next steps. The company already has a global innovation centre and back-end operations in India.”

Walmart already has a 50:50 cash-and-carry joint venture with Bharti Group in the country, while Tesco has a partnership with Tata Group’s retail arm Trent for providing back-end support.

“Retailers are in the wait-and-watch mode not only because of lack of clarity from the government, but also due to a slowdown in the economies of emerging markets,” says Pinakiranjan Mishra, partner at consulting firm Ernst & Young.

After the government allowed 100% FDI in single-brand retail early this year, the interest from global retailers has been better in this sector. Hennes and Mauritz (H&M) is the latest company to file an application to invest R700 crore. The government cleared Ikea’s R10,500-crore investment proposal—the largest investment proposal till now—in May this year. Ikea’s chief executive officer for India, Juvencio Maeztu, has previously said the company will wait to find the right location for its stores, the first of which might not come up before 2015.

The government is also expected to take up proposals by clothing retailer Brooks Brothers, Italian jewellery retailers Damiani, apart from Pavers England. In February, the finance ministry cleared proposals from French sports goods retailer Decathlon and American fashion retailer Fossil.

The government has so far approved a total of 18 FDI proposals worth $173 million in the single-brand retail sector between April 2010 and May 2013.

Ernst & Young’s Mishra feels that although the situation in single-brand retail is better than multi-brand retail, things are still not optimum. He adds that there need to be some policy measures to ensure that large-box retailers’ interest does not wane. “We can expect some bigger companies to file their applications to enter India in single-brand retail, as there is a lot more clarity on this front,” he says.

Interestingly, total FDI inflows into India rose an annual 12.9% in July this year to $1.66 billion, the highest monthly inflow for three months. FDI inflows were $1.47 billion in July last year. For the first four months of the current fiscal year, FDI inflows were up 20% from a year earlier to $7.05 billion, the ministry of commerce and industry said in a statement. FDI inflows had declined to $22.42 billion in the fiscal year ended March 2013, from $35.12 billion in the previous year.

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