Policy clarifications: Will Wal-Mart's India plan be a non-starter?

Things have not been easy for Wal-Mart in India. And they are not going to get any better. If the latest clarification from Commerce Minister Anand Sharma is any indication, the situation will only get worse.

In an interview to the Economic Times, Sharma has said those foreign retailers that want to set up shop in India will have to invest in new back-end infrastructure and not in existing companies.

Many foreign retailers are keen on entering the country and waited for the government to put in place an FDI policy for multi-brand retail. And when the government finallydevised the policy last year, it turned out to be an anti-climax for the aspirants because of conditions attached.

[caption id=“attachment_754945” align=“alignleft” width=“380”] Wal-Mart, one of the most controversial and aggressive retailers in the world. Reuters[/caption]

No wonder global majors are yet to take any concrete decision about their India entry.

Wal-Mart, one of the most controversial and aggressive retailers in the world, had already readied a plan to start operations here once the FDI policy is pout in place.

But its move has been fraught with allegations of corruption and forex violations, though the company has denied any wrong doing.

Today’s clarification precisely means that the company cannot invest in the back-end infrastructure of Bharti Eenterprises, with which it already has a tie-up for the cash and carry venture. This is likely to put a bigger spanner in Wal-Mart’s works.

For others, like Tesco and Carrefour, this policy may not mean much, as they are yet to decide on a local partner for the back-end.

However, in today’s interview there is one more clarification that is likely to put a drag on the Big Retail’s India plans.

The minister has also clarified that the mandatory $50 million investment in back-end infrastructure over three years does not include the money spent on real estate and the cost of land.

“It is an additionality. Investments have to be in new back-end infrastructure, not in acquisition of existing ones,” Sharma has been quoted as saying in this report.

This, however, seems to be a sensible policy point. Real estate is one of the biggest costs in India now and most of the mandatory $50 million investment would have been covered by this.

However, the key question is had the policy been crystal clear, would the Big Retail have made a beeline to invest in India?

Very unlikely. According to a report in Reuters, India’s retail sector is witnessing slow growth due to the prevailing ’licence raj’, where businesses have to pay ‘speed money’, a euphemism for bribery, to get more than 40 mandatory permits to run a multi-brand retail store.

“Right now it’s not possible to do business in India without greasing palms, without paying bribes,” Hong-Kong entrepreneur Ramesh Tainwala has been quoted as saying in the report.

Not many global retailers would have been happy to do this, because of the stringent laws in their homeland that govern their overseas operations.

However, minister Sharma seems to be in a denial mode. He says in the interview that the reason for retail majors not rushing to India is that it is taking time for them to take a business decision.

Given his cold reaction, the Big Retail’s India plans are likely to be remain a non-starter for some more time.