Walmart may be first to buy into retail FDI story

Written by Rishi Raj | Ashish Sinha | Updated: Sep 17 2012, 10:14am hrs
FeOwners of small shops transfer goods to their cars after shopping at a Bharti-Walmart store on the outskirts of Chandigarh
With the government allowing foreign multi-brand retail chains to pick up to a 51% stake in Indian firms and tweaking the local sourcing norms for single-brand retailing, where it had earlier allowed 100% foreign direct investment (FDI), US-based Walmart and Swedish furniture retailer Ikea could be the first ones to set up shop in India.

Bharti Enterprises, which currently has a 50:50 joint venture with Walmart for cash-and-carry stores (back-end wholesale stores), is now set to initiate talks with the latter for investments in front-end stores.

Enthused by the green signal to FDI in multi-brand retail, Rajan Bharti Mittal, vice-chairman and joint managing director of Bharti Enterprises, told FE that it is a natural progression to initiate talks with Walmart for investment in Bharti Retail.

We will definitely get into discussions with Walmart for investments in Bharti Retail now, said Mittal. It is a natural progression of our partnership in the back-end retail infrastructure. We were the first to bring Walmart into the country and our target of opening 15 cash-and-carry stores by 2015 has already been achieved. This best signals how strong our partnership is going and, therefore, talks of investments in front-end stores is a now a natural corollary. It is logical, Mittal told FE.

Meanwhile, Ikea has already announced its plan to invest R10,500 crore to set up its own single-brand stores in the country provided the 30% mandatory local sourcing norms were tweaked.

On September 14, while approving FDI in multi-brand retail, the Cabinet also modified the norms for single-brand retail if foreign companies want to set up 100% subsidiaries in India.

For instance, it approved important amendments including the proposal where the requirement of 30% mandatory sourcing from Indian medium and small-scale enterprises has been waived for those retail brands whose products cannot be sourced from such industries. The government has also relaxed the norms for firms under single-brand retailing by allowing them to set up two entities one that will execute single-brand retailing in which FDI will come and the other entity for sourcing of local products from SMEs. With these two crucial amendments, sources said, Ikea's application will be able to get the nod from the government.

Our concerns have been met now. We have already filed our application with the government and would now go ahead with the investments as and when the government approves our proposal, an official connected to Ikea told FE.

Sourcing from India was never an issue as during the last fiscal itself Ikea sourced goods worth $450 million from India. The issue was that the sourcing partners we have created in the country should not be removed from our net as they grow in size. With this being addressed, our concerns have been met, the official added.

Sources said that as a goodwill gesture Ikea will also climb down on the tenure required for calculating the local sourcing norms from the stated 10 years to seven. In its application made before the commerce ministry in June, Ikea had proposed that the calculation of the 30% norm be done for cumulative period of 10 years of operations starting with the approval of the present application. When the government had cleared 100% FDI in single-brand retail in November last year, it had stipulated that 30% of the value of the products being sold by the foreign retailer must be sourced from Indian small and medium industries whose value should be calculated from day one.

Retail giants like Metro, Tesco, Carrefour and others are also expected to set up shop in India.