Tesco seeks nod to enter India, the path is still not easy

The moment the UK-based retail chain, Tesco, announced on Tuesday (December 17), its plan to invest in the Tata Group's retail arm, Trent, the latter's stock gained close to a tenth of its market value on Wednesday. The market is clearly happy that the world's third largest retailer is looking at entering the country, where bigger players have not yet stepped in. Shares of peers Shoppers Stop and Future Retail also gained following the announcement.

The investment will be the first in the multi-brand retail segment since the government allowed 51 per cent foreign direct investment (FDI) in multi-brand retailing in September last year, and about two months after Walmart separated from Bharti Enterprises.

Bijou Kurien, Former CEO and President (Lifestyle), Reliance Retail, however says that there are so many conditions around FDI in multi-brand retail that nobody is clear how to invest in India. Analysts agree, but seem to think that Tesco has possibly cracked the code.

"The policy itself has gone through 'clarifications'. Within those clarifications, there are still many formidable hurdles and all of those have been listed out several times in the past," says Arvind Singhal, Chairman of consultancy firm Technopak Advisors. "Maybe Tesco has found some practical way to work within the parameters," he adds.

While, players such as Walmart and Carrefour have decided to stay away, Tesco is putting in $110 million, the same as Trent Hypermarkets Ltd in the 50-50 partnership to build its presence in two Indian states, Karnataka (Bengaluru) and Maharashtra (Kolhapur). With the Congress in power in both the states, it becomes easy for them to operate under the current multi-brand FDI policy. Under the current multi-brand investment rules, individual states have to permit FDI in the state, and the other states where the Tesco-Trent businesses operate are run by BJP, which has vehemently opposed FDI in India.

Singhal, however, is optimistic and says industry too believes that once the elections are over, there will be a more business oriented policy framework and better decision making in India. "And this is what the business wants, an environment which is supportive of business," he adds.

Kurien feels that people will still adopt the wait and watch approach till the Tesco application, the first in multi-brand retail, goes through at the Foreign Investment Promotion Board. "People will wait and watch what clauses the FIPB comes up with and then take a call," says Kurien adding that the wait will also be till the elections are over.

For Singhal the concerns are not just about the willingness of foreign companies to enter India, but that policies have been formed keeping in mind only the better known retailers, the likes of Walmart, Tesco and Carrefour. "The world has many other kinds of retailers and India needs all of them," he says, giving examples such as US electronics retailer Best Buy which would not be able to adhere to the 30 per cent sourcing norm from the small and medium enterprises as what it sells cannot be sourced from small and medium enterprises, or the likes of multi-brand shoe retailer Foot Locker which sells branded shoes. These companies would also not require a major backend infrastructure in terms of storage. Neither of them has shown any interest in entering India, yet.

"If you don't have an efficient retail system in the country, whichever political party comes to power, industry will suffer," says Singhal.