Indian government committee gives green light to retail investment

New Delhi, India: Tesco, Walmart and Carrefour are a step closer to opening large operations in India with the Committee of Secretaries recommending up to 51% foreign direct investment in the politically sensitive multi-brand retail.

But foreign retailer will have to commit at least US$100m and with at least half that invested in the back-end infrastructure, such as warehousing and cold storage.

At present, foreign direct investment is prohibited in multi-brand retail, but the government allows 51% investment in single brand retailing and 100% in wholesale cash-and-carry trade.

The Committee of Secretaries late last Friday gave an approval in principle to allow up to 51% of FDI in multi-brand retail. The approval does not automatically open the doors for the global retail majors. The recommendations must go to the Commerce Ministry and then the Cabinet for final approval. There is still a long way to go, but this approval is certainly a huge step forward in that direction.

Investors have responded positively. “This will be positive for the Indian retail sector as it will stimulate investment, especially in logistics and cold chain, and can spur retail sector growth,” says Abneesh Roy and Harsh Mehta of Edelweiss Securities.

Foreign retailers are already present in India. Germany’s Metro and US Wal-Mart run wholesale stores in India. Wal-Mart and UK’s Tesco also have supply and backend tie-ups with Bharti’s Easyday and Tata’s Trent, which runs Star Bazaar supermarket chains, respectively.

The Edelweiss analysts say opening up of the sector will benefit companies that already have tie-ups or are in discussions with foreign companies. Pantaloon Retail has had discussions with France’s Carrefour.

India’s retail sector is valued at an estimated US$590bn with the unorganised sector accounting for US$496bn, according to Edelweiss Securities.

The fall in overall FDI in India last fiscal provides a strong case for the government to amend the retail policy to boost foreign investment, the two analysts say.