NEW DELHI: The government is unlikely to formally reverse the decision to allow

51% foreign direct investment (FDI) in multi-brand retail despite the ruling Bharatiya Janta
Party's opposition to allowing the entry of overseas supermarket chains into India.

Although Nirmala Sitharaman, who is in charge of the commerce and industry portfolio, has
publicly stated that the party is against FDI in multi-brand retail, rescinding the decision
will send negative signals to the investor community at a time when the Narendra Modi
government is keen to woo investment, both domestic and foreign, to boost the economy.

Officially, however, the window remains open and foreign players who want to enter the
market can seek permission from the Foreign Investment Promotion Board to set up an
Indian venture. It's a different matter that no company plans to enter India at present and
in fact, BJP's stance against FDI has driven French retailer Carrefour out of the India as it
did not see any possibility of the government opening the window any time soon.


The flip-flop by political parties led by the BJP, which decided against allowing foreign
chains in states ruled by it, made foreign players circumspect. For instance, Walmart, which
had parted ways with Bharti Group, has decided to focus solely on the wholesale cash-and-
carry segment.

Analysts said that it is tough for overseas players to return to a market after exiting it. "You
have to convince the board once again and it's not an easy task," added a former executive,
who had worked at one of the Indian ventures set up by a global chain.

Tesco is the sole company that has decided to go ahead with its plans and has set up a joint
venture with the Tata Group and had planned to operate in states such as Maharashtra and
Karnataka, both ruled by the Congress and not averse to allowing FDI in multi-brand retail.
The BJP government in Rajasthan and AAP during its brief stint in Delhi had reversed their
predecessors' decision and barred foreign chains from opening stores.



Nirmala Sitharaman says no to FDI in multi-brand
retail








Commerce and industry minister Nirmala Sitharaman
PTI | May 27, 2014, 05.03PM IST
NEW DELHI: Reaffirming BJP's stand on FDI in multi-brand retail, new commerce and
industry minister Nirmala Sitharaman on Tuesday indicated that foreign players will not be
allowed to open mega stores in the country as it may adversely impact the small traders and
farmers.

"At this stage the party position is very very clear. We have explained about FDI in multi-
brand retail (MBR) that it probably is not best opened up now because medium and small
sized traders or small farmers have not been adequately empowered... if you open up the
floodgates of FDI in MBR, it may affect them," she said.

Sitharaman, who took charge of the ministry, was replying to a question whether the
government would rescind the current FDI policy of allowing foreign investment in MBRT.



The minister further said that she would "sit with the officials as to what has happened all
the while (to) further the manifesto based agenda of BJP we shall work."

The BJP manifesto had said, "barring the multi-brand retail sector, FDI will be allowed in
sectors wherever needed for job and asset creation, infrastructure and acquisition of niche
technology and specialised expertise."

Although the previous government had allowed Foreign Direct Investment (FDI) in multi-
brand retail, only one investment proposal of UK-based Tesco was cleared by the earlier
government.

She said the ministry would look at the current FDI policy in calibrated way.

Further, the new minister said that boosting exports will be the one of the top priority.

The ministry would play an important role in enhancing economic and trade ties with all the
countries, she added.

India's exports in the last three years have been hovering around USD 300 billion.

India's exports in 2013-14 fall short of the USD 325 billion target and managed to reach
USD 312.35 billion. The country's exports stood at USD 300.4 billion in 2012-13 and USD
307 billion in 2011-12.

After taking charge, she met with officials of the ministry, including commerce and DIPP
secretary.

Later, she also took charge as minister of state for finance.



Scrapping foreign direct investment in multi-brand
retail won't harm us, say mall operators







Rasul Bailay, ET Bureau | May 15, 2014, 12.20PM IST
NEW DELHI: Prominent mall operators say they are not worried about the possibility of a
new government disallowing foreign super markets in the country, saying malls are more
dependent on single brand retailing where India allows 100% foreign investment.

Almost all exit polls conducted in the country have predicted that the BJP-led National
Democratic Alliance will emerge winners when the Lok Sabha elections results are
announced on Friday, and BJP in its manifesto has said that it will oppose FDI in multi-
brand retail.

Most successful mall owners in the country ET talked to said FDI in multi-brand retail is not
a relevant issue for them. "We are dealing more or less with (single) brands that are coming
through franchisees, joint ventures or coming on their own. So from our perspective, multi-
brand retail is not of too much consequences," Arjun Sharma, director of Select Citywalk
Mall in New Delhi, said.

There are about 200 malls operating in the country, and most of the two dozen odd highly
successful shopping centres consider singlebrand retailers their mainstay.

Inorbit mall in Hyderabad, for example, is pruning the size of HyperCity hypermarket,
currently spread over about 120,000 sq ft, by almost 40% to carve out more space for single
brand retailers.

"Frankly what we are looking for is more single brands coming inside," said Kishore Bhatija,
chief executive of Inorbit Malls that operates shopping centres in Mumbai, Hyderabad and
Bangalore among other cities.

"As a mall operator I should have the choice of brands to match the requirements of my
catchment. The choice of brands will help me to differentiate from other shopping centers
and create and identity for myself and that will come from single brand and not from the
supermarkets," Bhatija said.

Spanish fast fashion brand Zara has become a big success in India, and many other global
brands are now lined up for India entry.

Sweden's Hennes & Mauritz (H&M), which received government approval for a wholly-
owned subsidiary last year, plans to open 50 stores in the coming years. US-based Gap Inc
and Japan's Uniqlo are also expected to formalise India plans or open stores in the coming
months.

Many mall owners are averse to lease out to large hypermarkets that sell everything
including electronics and apparels, which are available in malls through specialty stores.

"There is a need to bring in a supermarket but it has to be correct size to give productivity
and bring the offerings what we feel is required and not bring in the plethora of products
they generally sell," Bhatija of Inorbit said.

He said Inorbit is currently leasing out to supermarkets in the size of around 30,000 sq ft
only, down from between 50,000 sq ft to 120,000 sq ft.

Similarly, Infiniti Mall in Mumbai, that had earlier reserved about 57,000 sq ft area for a
hypermarket, now says the mall could do a supermarket of about 30,000 to 40,000 sq ft.
"We are looking at somebody who is offering a lot of grocery and food and vegetable and
gourmet food in the range of 30,000 to 40,000 sq ft and anything more than that may not
work for the retailer as well as us," said Mukesh Kumar, VP for Infiniti Mall.



Tesco set to go ahead with multi-brand retail venture







Dilasha Seth & Rasul Bailay, ET Bureau | May 30, 2014, 01.22PM IST
NEW DELHI: Undeterred by the BJP's apparently unyielding stance on foreign direct
investment(FDI) in multi-brand retail, Tesco is going ahead with its proposed $110 million
investment to open stores in a joint venture with Tata's Trent Hypermarket.

This follows assurances by government officials to the UK-based retailer that even if the
policy is reversed, it won't be done with retrospective effect.

Commerce minister Nirmala Sitharaman had said the government won't allow FDI in the
sector as it would hurt small traders and farmers, which is in line with the BJP manifesto,
but she didn't say if the existing rules would be amended.


Law and telecom minister Ravi Shankar Prasad told reporters on Wednesday that
retrospective changes in law should normally be avoided, "as it is very evident that India
needs foreign investment".

A person involved with Tesco's India venture said the venture was expected to proceed
unless there was a policy hitch.

Officials are confident that the first foreign investment in the multi-brand retail sector will
go ahead.

"Yes, we have unofficially spoken to Tesco in this regard. They seem keen to bring in the
money," said a senior government official. "Approval has already been granted to Tesco and
they can bring in the money. Even in the worst-case scenario that the policy is reversed, it
cannot be retrospective in nature under any circumstances," said the official.

In fact, some experts are of the view that Tesco will gain a first-mover advantage, since it
will be the only foreign retailer in the multi-brand space to have applied for and received
approval after India allowed 51% overseas participation in local supermarket ventures in
September 2012.

On Wednesday, the Competition Commission of India cleared Tesco's proposal to acquire a
50% stake in Trent Hypermarkets Ltd.

Last December, the former UPA government had approved Tesco's application to invest
about $110 million in a 50:50 joint venture with Trent Hypermarket.

"We're pleased to hear that the Competition Commission of India has approved the proposal
for Tesco to form a joint venture business with Trent Ltd, part of the Tata Group. It's a big
step towards the formation of this exciting partnership. Any further announcements will be
made in due course in the appropriate way," a Tesco spokesperson said in an e-mailed
reply.

In a bid to make the Trent-Tesco venture FDI compliant, Trent Hypermarket has already
transferred its four stores in Gujarat and Tamil Nadu - two states where FDI in
supermarkets is barred - to a subsidiary Fiora Hypermarket Ltd.

"It is difficult to stop them now. Though chances of a policy reversal look bleak, Tesco is in a
strong position. The law can be applied retrospectively strictly in cases of interpretational
issues. Retrospective changes are clarificatory in nature," said a government official.

In 2012, the Indian government amended its income tax law retrospectively and re-opened
an Rs 8,000-crore tax liability dispute with British telco Vodafone. The move sparked an
international row and has been blamed for undermining business sentiment.

One of the compromise options before the government is to roll back FDI in the sector to a
maximum of 49%, which will mean that majority control remains with the Indian partner.
This will ensure that India gets capital and foreign expertise without the issue becoming
politicized.







In the first week of April, the Bharatiya Janata Party (BJP)
released its election manifesto. The document confirmed the
party's opposition toforeign direct investment (FDI) in multi-
brand retail. This came close on the heels of the Aam Aadmi
Party also declaring its opposition to the ruling Congress's
showpiece reform. Indeed, among major political parties,
Congress now remains
the sole supporter of
the policy.
BJP and AAP have opposed FDI
A contentious proposal to begin with, its fate now
depends on the electoral arithmetic after the
general elections. Rachna Nath, Leader (Retail
and Consumer) at
PricewaterhouseCoopers India, says that the
whole issue is now dependent on the
number of seats contesting political parties get. "Till
then, it's a wait-and-watch game for everyone,"
she says.



The United Progressive Alliance government in its second term made several attempts to
bring foreign capital into the retail sector. The Indian government allowed 51 per cent FDI
in multi-brand in September 2012, a few months after allowing 100 per cent in single brand
retail. It did manage to attract some investments in single-brand retail - Swedish furniture-
maker IKEA, British footwear retailer Pavers and Swedish retail-clothing company Hennes
& Mauritz announced plans for India - but there has only been a single FDI proposal in
multi-brand retail so far. British retailer Tesco will buy 50 per cent stake in Tata Group-
owned Trent Hypermarkets for $110 million.
Several stipulations in the existing FDI policy are acting as deterrents for global retailers,
say industry insiders. For example, the Department of Industrial Policy and Promotion
(DIPP), the authority that frames FDI policy, stipulated that foreign retailers with plans to
set-up multi-brand chains have to invest a minimum $100 million with 50 per cent of that
amount spent in building back-end infrastructure such as warehouses and cold storage
facilities. This proposal has upset retailers because investing 50 per cent in back-end
operations initially is difficult when the focus has to be on increasing the store count to
acquire scale. Harminder Sahni, Founder and Managing Director at retail consulting firm
Wazir Advisors, says that it is not an attractive policy for retailers in its present form. "If the
new government is interested in bringing foreign investors, the whole policy has to be
rewritten," he says.
Several stipulations in the existing FDI policy are acting as
deterrents for global retailers
This appears unlikely after the elections given the opposition to the policy from most political
parties. BJP is in favour of FDI in infrastructure and several other sectors but "we don't want
FDI in multi-brand retail because that will save jobs in the manufacturing sector," says BJP
spokesperson Prakash Javadekar. The main problem is the sourcing of products, according
to him. "Global chains are expected to source their products from multiple countries which
will lead to large scale job losses in manufacturing," he adds.
in multi-brand retail in their
manifestos

SIZE OF RETAIL
INDUSTRY: $518 billion in 2012.
Organised retail is about 7 per
cent
The opposition to multi-brand retail is also stemming from the threat that these global chains
are likely to pose for local mom-and-pop shops. With their competitive pricing techniques,
political parties feel that modern retailers can snatch away business from kirana stores.

Continued uncertainty on the issue of multi-brand retail could send wrong signals to the
global business and investor community, say experts. A few months ago, 12 states and
union territories had allowed FDI in multi-brand retail. In the last four months, two - Delhi
and Rajasthan - have decided to opt out of this list with the formation of new governments.
"If I was one of these foreign retail chains, I would be really concerned," says Amitabh Mall,
Partner, Boston Consulting Group.
We don't want fdi in multi-brand retail... global chains source their products from
multiple countries which will lead to large scale job losses in manufacturing:
Prakash Javadekar, Spokesperson, BJP
Experts say that continued uncertainty on
multi-brand retail could send wrong
signals to the global business and investor
community
A long break-even period and limited geographical locations
are forcing retailers to either hold back their India plans or look
for other avenues to grow in the country. Walmart India, which
currently operates 20 cash-and-carry - or wholesale trade - stores (named Best Price
Modern Wholesale), has plans to open 50 more such stores in the next four to five years.
Some consider expansion of cash-and-carry business a strategic decision. Retailers want to
build strong network of vendors and stores which could support their front-end business as
and when they get approvals.
India is trying to modernise its front-end retail sector. But with entry barriers to FDI being
raised, it seems the country has taken two steps backward after a step forward.