Connect with us

Hi, what are you looking for?

Capital Business
Capital Business
A woman walks from a shopping mall/AFP

Finance

Confusing rules deter foreign supermarkets from India

A woman walks from a shopping mall/AFP

A woman walks from a shopping mall/AFP

MUMBAI, Sept 11 – A year since India reduced foreign investment barriers to its retail sector to spur flagging economic growth, confusing rules and political uncertainty are keeping overseas supermarket giants away, analysts say.

In September 2012, the government allowed foreign stores to set up 51-percent-owned joint ventures in India which they had eyed for years as a potentially lucrative market.

But so far no there has been no rush to open outlets, despite further easing of entry barriers in August.

“There’s no comprehensive consolidated government paper on Foreign Direct Investment (FDI) — just updates and statements. It’s not a good sign,” said retail analyst Anil Talreja of global consultancy Deloitte.

Last month, US giant Walmart sought more government clarifications on FDI, having earlier said it was unable to fulfill sourcing guidelines stipulating 30 percent of products must come from small-scale industry.

“India is an important market for us and we continue to study the implications of the new FDI policy on our business,” a Walmart spokeswoman told AFP.

In September 2012, Walmart said it aimed to launch its first retail store in India within the next 18 months to two years but has made no recent mention of the target.

The firm, like French supermarkets Carrefour and Britain’s Tesco, operates in India as a wholesaler with local partnerships but is yet to set up its own stores.

Devangshu Dutta, head of retail consultancy Third Eyesight, said “regulatory complexity” was an issue for brands “evaluating the costs against benefits” of entering the country.

The inability to woo big foreign firms is a blow for India, keen to attract outside investment to help boost its sliding economy.

Advertisement. Scroll to continue reading.

The rupee has fallen by nearly a fifth against the dollar this year, economic growth is at its slowest in a decade and the current account deficit, the broadest trade measure, is at a record high.

But with elections due by next May, the Congress-led government now seems more focused on populist measures, such as a huge food-for-the-poor scheme, than on streamlining FDI policy — a politically sensitive issue, analysts say.

After new FDI in retail rules were passed last year, protests erupted among shopkeepers and labourers who feared a loss of jobs and collapse of small family run stores.

The majority of the retail sector remains dominated by traditional family owned shops and small grocery stores, but organised retail — mostly chain stores — is expected to jump from eight to 24 percent of the market by 2023, according to consultancy Technopak.

The central government has left it to each state to decide whether foreign retailers can set up shop — and so far only 11 out of 28 states have expressed a keenness for overseas chains.

Sonam Udasi, Mumbai’s IDBI Capital research head, said there were “too many different noises” over foreign investment to reassure players. “Most will wait until a new government comes to power,” he told AFP.

One of the few foreign retailers to commit to India in recent months is Swedish giant Ikea, which plans to open 25 stores as part of a wider push into emerging markets.

“In the first phase, we will plan stores in main cities,” an Ikea spokeswoman told AFP, declining to be more specific about a timeline. The firm’s India chief, Juvencio Maeztu, has said it is willing to wait “five years” to find perfect store sites.

But while foreign supermarkets hold back from India, domestic chains are rapidly expanding, underlining the potential of a middle-class — expected to cross 250 million people by 2015, consultancy McKinsey estimates.

Advertisement. Scroll to continue reading.

The Future Group, India’s largest retailer, plans to grow by 1.5 to two million square-feet of retail space each year over the next three years, says “retail king” Kishore Biyani who controls the group.

“Aspirational growth in India remains strong. This will drive consumption, which we feel could be three to four percent above economic growth,” he told AFP.

Another Indian giant, Aditya Birla Retail, says it has “aggressive” plans to open up to eight new hypermarkets and more than 40 new supermarkets this year.

Rival Reliance Retail, which sells everything from vegetables to electronics, aims to hike revenues five-fold to 500 billion rupees ($7.5 billion) by 2016.

But as local players push ahead, the wait for foreign supermarkets will likely continue until the economic outlook and regulatory climate clears, experts say.

“The current FDI policy should be discarded, it’s ill-informed and ill-advised,” Technopak chairman Arvind Singhal told AFP.

“The government could have done so much more. We’ve muddied the waters,” he said.

Click to comment
Advertisement

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...

Headlines

NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...

Kenya

NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...

Coronavirus

NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...

Coronavirus

NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...