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Tesco PLC plans India entry after arm-twisting by politicians, scripts triumph for Congress-led UPA govt

Mar 22 2014, 10:32 IST
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A Tesco PLC spokesperson did not comment on the reasons behind the company's decision to enter India now. Reuters A Tesco PLC spokesperson did not comment on the reasons behind the company's decision to enter India now. Reuters
SummaryTesco PLC to be first foreign player to set up supermarket chain in India.

year we said 'let's go for it now'," said an official at Trent, who cannot be named as he is not authorised to speak to the media.

"We have been made to understand...that an approved investment plan will not be reversed as it will send a very wrong message to the international investor community."

Company sources said there had been numerous meetings with the government throughout the year, and talks intensified in recent weeks.

Two government sources said trade minister Anand Sharma met Tesco chairman Richard Broadbent at the Davos World Economic Forum in January and assured him there of "hand-holding" by the government if the company invested in India.

Sharma also had several meetings with Tesco chief executive Philip Clarke, who sought dilutions to the entry requirements.

WAY AROUND REGULATIONS

Along with Wal-Mart and Carrefour, Tesco until recently maintained that India's retail regulations, especially one that mandates 30 percent local sourcing from small and medium-sized enterprises, will be difficult to comply with.

But the small scale of Trent's hypermarket business will help Tesco adhere to the regulations for now, sources said.

"We have decided to tweak our current business model to comply with this," said the Tesco official. "Make no mistake, it's going to be tough and the challenge will keep increasing as we grow, and so, as you see, our immediate growth plans for India are not very aggressive."

Since 2008, Tesco has had a franchise agreement with Trent Hypermarkets, which runs the Star Bazaar chain of stores and provides sourcing and technical help to its partner.

Star Bazaar runs 16 stores in the country and if Tesco's investment is approved, they will open only 3-4 stores a year under the partnership, a very slow expansion plan designed to meet the sourcing regulations, find a model that works and fix the loss-making hypermarket chain, retail consultants said.

"It's a showpiece investment which will only make the government happy because now they can say 'look, someone's come'," said Harminder Sahani, managing director of Wazir Advisors. "It is too small to make any significant difference to the country or the retail sector."

Tesco's investment in India is widely expected to be cleared without much political opposition, thanks to its decision to keep a low profile before, consultants said.

Wal-Mart, by contrast, had blazed the Indian retail trail, earning the ire of political parties and trade unions. An investigation into whether it broke India's foreign investment rules and an internal bribery probe also

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