Retail hails FDI move, but awaits fineprint

Local retail biggies have hailed the Cabinet’s decision to allow foreign direct investment (FDI) of up to 51% in multi-brand retail and increase the investment limit in single-brand retail to 100% from 51% now.

The move augurs well for the industry, they said, albeit on a cautious note since the Cabinet Committee on Economic Affairs was yet to issue an official statement.

“The opening up of the retail sector to foreign investment is a big win for consumers as they will have more choices. It’s a win for small industries as they will have more retailers creating markets for their products. Above all, it’s a win for the country as we will get around $8-10 billion of fresh investments coming in over the next 5-10 years,” said Kishore Biyani, founder, Future Group.

Debate on opening up the retail sector has been on for at least seven years now. While local players were seeking a calibrated approach, international biggies who have set up presence in the wholesale cash & carry segment hoping to be able to tap the front-end were beginning to get frustrated.

US-based Wal-Mart, for one, has been studying the market for five years. It runs around nine cash & carry wholesale stores across India under a joint-venture with Bharti Retail.

Sunil B Mittal, chairman and group CEO of $8.3 billion Bharti Enterprises, welcomed the move but said, “Details have not been announced yet hence it will be too early to comment. Riders like minimum investment, deployment of the money, local sourcing, cities being opened for initial roll-out etc. will have to be studied for their possible impact on the business,” Mittal said on a television channel on Thursday.

Pinakiranjan Mishra, partner and national leader - retail and consumer products, Ernst & Young India said allowing FDI in multi-brand retail will largely have three impacts on India — growth of retail sector will accelerate; infrastructure and supply chain improvements will bring down costs and cut wastage; and farming community will get a ‘push to productivity’.

Kabir Lumba, managing director, Lifestyle International, a part of Dubai-based Landmark Group, said that with FDI being allowed in multi-brand retail and the cap in single-brand being increased, the group will have a better foothold in India.

In India, the company runs departmental format Lifestyle, value fashion chain Max, home décor chain Home Centre and fashion brands Splash and Bossini in India.

Given the many clauses in the Bill, however, retailers will have to do great due diligence, said Lumba.

Setting up stores will be easier said than done, too, what with real estate costs at exorbitantly high levels.

“India is one of the fastest growing market for per capita consumption. Some Indian retailers are scouting partnerships and are FDI-ready, others will create readiness,” said Kumar Rajagopalan, chief executive of Retailers Association of India, an apex body representing the industry.

According to Mishra of Ernst & Young, several retailers from Europe, US and Far East too were keen to come in, besides biggies like Wal-Mart, Tesco and Carrefour. “There are some single-brand retail players that would have not come to India through partnerships. Now with 100% FDI in single-brand retail, they would certainly look at India,” he said.

Most Indian retailers are keen to look at FDI for additional funds and know-how, but are not desperate to form partnerships in a hurry, said Rajagopalan. “It may be a good 2-3 years before we see palpable changes in the Indian retail sector. Importantly, for Indian retailers, there will be increased options and access to global strategic investors,” he said.

Arvind Singhal, managing director, Technopak Advisors, feels the development is sure to send positive signals out into the International markets. “It will demonstrate that the Indian government is serious about reforms. This development is great news particularly for retailers who are starved for growth capital. The move is likely to see investments flowing into some of the non-listed entities to start with,” he said.