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Wal-Mart effect: Tesco won't invest in India unless there's clarity on retail FDI

Despite India relaxing a further set of rules governing foreign investment in its retail sector, US retail giant Walmart called off its six year partnership with the Bharti Group while other retailers are now going slow on expansion. They are however still betting on India.

According to a CNBC-TV18 report, global retail giant Tesco will invest in India without further clarity on India's retail FDI policy. Ironically, Tesco's response comes a day afterWal-Mart blamed the country's retail FDI policy for the split with Bharti enterprises.

"We are excited about the India opportunity but clarity is required on the policy front... Tesco has made substantial investments in India over the last decade," the company was quoted as saying by CNBC-TV18.

Global retailers believe that the green field investment mandated in both back end and front-end are restrictive for existing retail JVs where one partner is an overseas firm. Also, uncertainty on how foreign retailers will be treated in states that undergo a regime change has been a big dampener.

 Wal-Mart effect: Tesco wont invest in India unless theres clarity on retail FDI


India's FDI policy requiresforeign investor to bring in at least $100 million of investment, split equally between the front and back end. The implication of the policy is that this amount has to be new investment. In other words, a foreign multi-brand retailer will have to spend $50 million in setting up new stores to meet the front-end requirement.

Moreover,Tesco has sought assurance from India that any change of governments at both centre and states should not result in reversal of FDI policy in multi-brand segment, before taking investment decisions in the country.Tesco had sought clarification on various clauses that imposes a mandatory 30% sourcing from small industry.Only manufactured or processed goods that are to be sold through front-end stores in India will be counted towards the mandatory sourcing requirement, DIPP said through a clarification to the policy.

Another big concern is political uncertainty.States which have at present opted for opening of front-end stores in their territory can opt out at a later stage.

After the government cleared 51 per cent FDI in MBRT last year, only 11 states have so far agreed to allow foreign retailers to open stores.

The general elections in India is expected to be held next year. Earlier this year, the main opposition party BJP's national president Rajnath Singh had said that the party would reverse the UPA government's decision to allow FDI in retail if voted to power in the general elections in 2014.

Tesco had entered into a partnership with Tata Group firm Trent in 2008 for providing back end support to the latter.

DIPP secretary Saurav Chandra however told CNBC-TV18 on Wednesday that there are no plans to change the controversial norm currently.

Maintaining that it has made substantial investments in India during the last decade, Tesco also said that the company exports nearly half a billion dollars' worth of goods from India for its international sourcing operations.

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Updated Date: Dec 20, 2014 23:26:52 IST

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