Hope comes alive after retail vote, but no quick gains likely
While the green signal from the Lok Sabha may not translate into foreign investment flow into India overnight, top industry representatives think it is a positive signal that the world is not likely to ignore. The industry representatives, who watched the Lok Sabha debate on foreign direct investment (FDI) in multi-brand retail for two days, were relieved that the Congress had won the vote. Although the debate enters the Rajya Sabha tomorrow, industry is already exhibiting optimism and talking of a slew of other reforms that may follow soon.
“The biggest barometer is the stock market movement and one will see that tomorrow morning,” said a senior executive with a prominent retail chain, when asked about the impact of the vote.
Anshuman Magazine, chairman and managing director (South Asia), CB Richard Ellis, an international consulting firm, told Business Standard the development was very positive overall and that it would encourage foreign retailers to come in. “It would be a game-changer for the retail industry and consumers will get choice,” said Magazine. He, however, added that “real action on the ground can be seen only 2014 onwards,” as it takes time to find real estate, get sourcing in place and have an efficient supply chain.
Retail is a highly capital-intensive business and investments are typically long-term here, pointed out an analyst. Therefore, chains will come in when they know India market is promising, he added.
A government official said: “Overall, prospects in India are so good that staying out of this country is a luxury that businesses cannot afford.” Even if conditions are tough to comply within the multi-brand retail FDI policy at this point, the long-term potential in the India market is significant. “It is a difficult market for doing business, but foreign-owned companies in other sectors like automobile have gained from long-term India operation,” he added.
Not everyone is so hopeful, though. Arvind Singhal, chairman, Technopak Advisors, a leading retail consultancy, said if the retail FDI policy gets the approval of both Houses, it would facilitate foreign investors to pick up stake in Indian retail chains. But, according to Singhal, there are remote chances of new foreign players coming into India at this point, except for some stray cases. “The conditions for the FDI policy are very tough, which may make the foreign play in retail a non-starter,” he said. “Not too many players may be interested in a policy with so many stringent conditions”.
Among other things, Singhal was referring to a condition in the multi-brand policy that states will have the right to decide whether to roll out foreign-owned retail chains or not. So far, only 10 states/Union territories have said yes to FDI in multi-brand retail. Also, there is a clause in the policy that only cities with over 1 million population can allow retail FDI.
With the two conditions taken together, only 16 cities in India are ready to open foreign-owned supermarkets. The mandatory 30 per cent sourcing from small and medium industries in India is yet another hurdle for retail chains wanting to open stores in India.
Patel breaks Sibal’s notion
The Congress has the NCP’s backing on FDI in retail. But in Maharashtra, it is yet to get the coalition partner on board. Union Minister and NCP leader Praful Patel added a caveat to Communication and IT Minister Kapil Sibal’s comment yesterday that the state was agreeable to 51 per cent FDI in retail. Patel said a state panel would decide on the issue. Patel differed with his Cabinet colleague on another issue, too. He was opposed to the idea of calling wholesalers “middlemen” as, he said, they do not indulge in anything illegal and were part of the trading tradition of the country. Yesterday, Sibal had accused BJP’s Sushma Swaraj of taking the side of “moneylenders”.
The rotten matter
There is a cloud over the wastage quantity of fruits and vegetables, though this is one of the main argument for FDI in multi-brand retail. BJP’s Murli Manohar Joshi said in the debate the Central Institute of Post-Harvest Engineers and Technology had quoted wastage as only six-18 per cent. The Fruit and Vegetable Merchants Association had in 2008 quoted the wastage as five to seven per cent. “On a more detailed study, we found that these (high wastage estimates) are myths created by a few MNC retailers such as Walmart, Tesco, Metro GMBH, and Carrefour who are very keen to set up shops in India,” he alleged. Minister for Commerce and Industry Anand Sharma said the wastage was 30-35 per cent.
The contract has been put on hold and further payments have been stopped
Says investment likely to rise now that political uncertainty has disappeared