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Monday, December 5, 2011

Two weeks later Govt Freezes the FDI retail proposal

NEW DELHI: A day after the Cabinet cleared a proposal allowing foreign retailers to own multi-brand stores, a contingent of Indian industrialists met industry and commerce minister Anand Sharma and thanked him for pushing through the much awaited proposal.

Two weeks later, the same bunch of industrialists are a nervous lot, after an UPA ally indicated on Saturday that the government would defer its ambitious retail liberalisation plans until a political consensus emerged. This sudden shift in government stance could wreck the plans of India's top retailers like Future Group, Bharti Retail, Spencer's Retail and Next, all of which were banking on foreign capital for their expansion and expertise to run a complex business like retail.

Senior executives of these four retailers said ever since the FDI announcement, they had stepped up their liaison and discussion with foreign retailers, with the hope that they would soon be able to bring the much required funds. Says Kishore Biyani, the chief executive of India's largest retailer, Future Group: "FDI would have provided a fresh lease of life." But now growth will slow down as funds are freezing up.

"We were growing at 25%-30% and foreign investment would have increased the growth rate to 40-50%. Currently, we are working hard on cash flows for generating investment." The group has been reportedly negotiating with multiple partners, including Carrefour.

Sumantra Banerjee, president (retail) at RP-Sanjiv Goenka Group, which runs the 230-plus Spencer's stores across India, says FDI in retail is a must as the sector needed fresh funds. "Foreign investment in the business would have accelerated Spencer's expansion plans." Spencer's is banking on retail FDI to attract funds to grow and break even by attracting investment in the back-end operations.

"We are in talks with multiple partners and expect to retain majority holding in the retail business. Investment from the foreign partner will help us to break even faster," chairman Sanjiv Goenka had said at a press conference the morning after the FDI announcement.

The group's retailing business logged revenues of Rs 1,056 crore and a loss of Rs 286 crore in 2010-11. Even Bharti Retail had announced its intention to partner with Walmart to set up multi-brand stores. "It is a bold move. We will start negotiations with Walmart soon," Bharti Group's vice-chairman and managing director Rajan Mittal had told ET.

Mittal was among the industrialists who met Sharma after the Cabinet approval. On November 24, the UPA cabinet had allowed foreign entities to own up to 51% stake in multi-brand retail and raised FDI in single-brand to 100% to boost foreign inflows into the sector and improve its infrastructure.

The government had argued that move will create lakhs of jobs, boost the agri sector and reduce wastage besides providing a better deal to the consumer. However, UPA allies Trinamool Congress and DMK vehemently opposed the move. TMC chief and West Bengal chief minister Mamata Banerjee on Saturday said Union finance minister Pranab Mukherjee had given her a commitment that the government would not to go ahead with the FDI decision until a consensus emerged on the issue.

Foreign retailers, who have been equally keen to get a slice of India's Rs 20 lakh crore retail market, have also begun to make enquiries about the latest development.


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