In the
month of September 2012, present Government of India, put everything
at stake, including its own existence, to get its policy of Foreign
direct investment in multi-brand retail trading approved by a
reluctant and largely hostile parliament. The Government somehow
scraped through the bill with only 12 states and union territories
having agreeing to allow FDI funded multi-brand stores in their
geographical boundaries after the sector was opened to foreign
investment.
Government,
while promoting the idea, had told everyone that these new retail
stores would be a new distribution channel independent of the middle
men and would stabilize the markets and would bring down the
inflation. But then came the anti-climax. There were just no takers
for the scheme, even till this very month. Initially, Government
hoped that Walmart Stores, the world's largest retailer, which has
been lobbying for years for India to open the sector and had already
taken some steps in this direction, would come in first. However this
did not happen as an internal probe was being done in the company to
check if the India unit has in any way violated the US anti-graft
laws. Walmart's India plans still remain in disarray with no clear
time table for India entry. The major French retailer Carrefour still
does not have a local partner to fit within framework for the policy.
The
third major international player in multi- brand retail trading is
British owned TESCO. As late as April 2013, TESCO had said that
India's modern retail market was in "very early stage" with
only £3 billion of potential business. This was followed by another
analysis just 2 months back, where this retailer had placed India
among its lowest preferred investment destinations along with China
and Turkey. But during last two months, TESCO has suddenly changed
its outlook for India and on 19th
December 2013, actually announced that it has applied to the
Government for a $110-million proposal, to invest in India in
partnership with the TATA group, one of India's biggest business
conglomerate with interests ranging from Automobiles, steel,
telecommunications and consumer goods.
Analysts
are attributing two reasons for this sudden change of heart for the
company. There is one school of thinking, which feels that TESCO was
arm-twisted by the Indian government to rush through with the
application. According to Reuters, a TESCO official is believed to
have said: "We were under phenomenal pressure from the Indian
government to apply and frankly phenomenal pressure is an
understatement. The pressure was intense on a
government-to-government level."
According
to another theory, TATA's may have prodded TESCO to decide on India
favourably. Tatas may have advised TESCO in favour of India entry,
arguing that in the current scenario, the government would go out of
its way to see the proposal through. TATA group already has serious
business interests in Britain like owning tea firm Tetley, steel
maker Corus and luxury car brands Jaguar and Land Rover. It therefore
certainly makes business sense for TATA's to form a joint venture
with a British company to expand it's multi- brand retail business
in India being done presently under brand name “Trent.”
Whatever
may be the reasons, TESCO has decided to make a foray in India, much
to the relief of the Indian Government, whose FDI policy had fallen
flat on its face for 15 long months. TESCO's $100-million proposal
has already been processed by the Department of Industrial Policy and
Promotion (DIPP) and set to the Foreign investment promotion board,
both being Government owned entities. Regarding details of TESCO
proposal, I quote from a report:
“The
company will open 3-5 stores every year under the brand names of Star
Bazaar, Star Daily, Star Market and Star Extra that will give
employment to 600-800 people every year. Both Trent and Tesco will
hold 50% each after the induction of foreign equity. TESCO plans to
invest at least 50 million Dollars for development of backend
infrastructure, that will include investment made towards processing,
manufacturing, distribution, design improvement, quality control,
packaging, logistics, storage, warehouse, agricultural market produce
infrastructure.”
On
its part, TATA's have agreed to sell off four stores owned by Trent
Hypermarkets, that are located in states that do not allow foreign
direct investment in multi-brand retail. It also proposes to obtain
special permission to operate it's existing store in Kolhapur, a city
with less than 1 million population, where such multi brand stores
may not be set up under present Government FDI rules.
TESCO's
proposal seems to have brought cheer to the commerce ministry as so
far its FDI policy had no success at all. Considering the success of
some of India's indigenous retail store chains like Big Bazar or
Reliance Fresh and the large middle class clientele that has been
captured by them, TESCO-TATA venture is most likely to be reasonable
success. As a consumer, I hope that more such multi- brand stores
come in and the hegemony of marketing federations and middlemen is
broken once for all, benefiting the ordinary customers like me.
23rd
December 2013
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