FDI in retail: Big retailers barring Walmart, Tesco adopt a wait-and-watch attitude to govts decision to allow FDI in supermarkets sector
The government may have spread the red carpet out for overseas retailers last week, but the political heat its reforms burst has generated means that footfalls on this carpet will be few for now. And those who plan to tread it will only do so gingerly.
After last November's experience when the government was forced to freeze its decision to allow foreign firms into the retail sector, global retailers are choosing to adopt a "wait and watch" attitude to decision permitting foreign retailers to invest in India's supermarkets sector.
At the global retail industry's annual schmoozefest -- World Retail Congress - taking place in London, the Indian participation is strong, but the outside interest in the country is, as Arvind Singhal of Technopak put it, good but not good enough.
As one London-based private equity and real estate consultant says: "All my clients ask about India. But they don't seem quite ready to put their money in it."
Speaking on the sidelines of the Congress, Lucy Neville Rolfe, board member of Tesco, Britain's biggest retailer, was clear: "We're glad about the progress that has been made in India... But there are conditions. We have to study the impact of the conditions."
The consensus response to the reforms: given what happened last year, investors want to be assured this time the decision will stick. As the international business director of a major European food retailer said: "The fact that reforms were withdrawn last year, Parliament sessions are aborted regularly, no policy gets through, constant changes in policy...It does not make for confidence for a global manager."
Not everyone is aware of the intricacies of policy-making in India, and the big question being asked is: will this have to go through parliament? It does not, but the fear is that in that case, it's a non-starter.
Pankaj Ghemawat, management guru and a professor at IESE business school in Barcelona, is of the view that companies like Walmart, which changed its global model to partner with Bharti in India, is better placed to take advantage of the changes than anyone doing a cold start.
"The domestic political environment may have changed, but global investors aren't aware of that - after last November there's still some scepticism. The jury is still out on whether these reforms are really about Manmohan Singh finally putting his foot on the pedal, or are these just some more political we 'have to do something' imperatives," he said.
At the World Retail Congress a variety of questions seemed to bob up. How do we tackle the state-wise division? Is India getting federalised like the European Union? What will that mean for my business plan?
A senior official of a major retailer noted that while it was all very fine for big ticket names such as Walmart and Tesco because they already have local partners, for others finding an Indian partner with the financial clout to handle the 49%, sourcing conditions and navigating the federal environment was not going to be easy. "There are still so many questions. The conditions have to be studied, we have to understand the state-wise conditions, and I'd say this is a good beginning, but there's still a long way to go," he said.
As Bijou Kurien, president of Reliance Retail said: "We're getting a lot of questions. But it will take time for anything to happen on the ground. Everyone is being cautiously optimistic."
Sanjay Kapoor of Genesis, who handles a string of luxury franchises including Burberry, is of the view that at his ends of the market, its business as usual. His partners aren't either over, or under excited by the changes.
So will last week's announcement jump start a flush of FDI in retail in the short term? The answer from London is a categorical no, unless, as one analyst put it, Indian retailers were able to hardsell the India story to potential partners.
At the top, the view is much more long term and sanguine. The World Retail Congress' global survey of retailers found that despite indications of a slowdown in China and India, retailers globally believe they remain the best growth markets.
For now, the wait is for more clarity and certainty before India figures prominently in the mega-bucks investment category.
This article was originally published in the Economic Times dated 21st September, 2012, written by