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FDI in Retail still to fall in Place in India

Posted: Wednesday, 09 April 2014 11:35

FDI in Retail still to fall in Place in India

Apr 09: The stand taken by the BJP in its Poll plank that FDI in retail would not be allowed despite the green signal by the current UPA government signals the possibility of further delay in the signing of the FTA between India and EU the talks for which had been going on for over six years but were put on the back-burner last year because of the ensuing elections, as predicted by delWine about 18 months earlier

Bharatiya Janata Party (BJP) which seemingly has been improving its chances of winning the elections and several recent Polls indicating its coming back to power in majority with or without its allied partners, has said through its senior member Arun Jaitley that the party is pro-traders and will not let their interests be sacrificed although it claims to be an economically progressive party. Jaitley is likely to be the next Finance Minister if his party wins the ensuing elections and his loaded statement indicates that the policies and decisions by the current government will be reviewed and may even be reversed.

Elections and their possible outcome has made global giants like Walmart and Carrefour take a sit-and wait-stand on entering multi-brand retail till a clearer picture emerges after the national elections and the ruling coalition is formed at the Centre. According to the analysts, it would be better to wait for another couple of months for these companies if they were committed to be in India for the long haul. Nobody is certain of the shape of the future economic policy and its role in the FDI in Retail or the FTA.

UK retailer Tesco was the first applicant after the government allowed 51 per cent foreign direct investment in multi-brand retail in September 2012. Commerce minister Anand Sharma had said another player would enter the field soon. However, officials in the Department of Industrial Policy and Promotion (DIPP), the nodal agency for FDI, said they had not received any application after Tesco’s $110-million proposal. Tesco plans to operate stores under various banners, including Star Bazaar, Star Daily and Star Market.

Over the past few years, the Congress-led UPA government had eased the FDI rules to encourage global retail giants to set shop in India. However, the response has not been as encouraging as expected because the investors are not comfortable with the vacillating stand and non-clarity of policies which keep changing their full-stops and commas frequently.

The current majority constituent of the ruling coalition, the Congress party in its manifesto has once again encouraged the growth of multi-brand retail sector through FDI as it believes it will transform the agrarian economy and create value chain between the farmer’s produce to the actual consumer by creating rural infrastructure. It also believes that the farmers would get higher returns for their products.

The global players can wait to enter but cannot afford to ignore the Indian market because of its robust economy picking up pace and the huge size of the market with its increasing long-term potential.

Meanwhile, according to a report by ET, Walmart, the world's largest retailer has invested over Rs 1.3 billion in the Indian subsidiary after it announced a split with its partner Bharti. The message is clear-it is bullish on India despite breaking with its JV partner last year after internal inquiries into illegal lobbying that might have been committed locally. It has, thus far, not reacted negatively to the reports that the FDI has still not many takers. Even the French retailer Carrefour has not entered and is waiting on the fence.

Walmart India, a new company registered in January this year, issued and allotted more than 810 million equity shares at Rs. 16.35 each to its Bentonville-based parent as share application money, according to a board resolution passed last week, according to the report. The company plans to independently own and operate separate business formats in the country. It has paid and bought out the 50% shares that Bharti owned in the erstwhile partnership but has put a freeze on the expansion of stores till 2015.

India EU FTA Talks still under freeze

Anticipating the current scenario, delWine had predicted 18 months ago and made it known that unless the Foreign Trade Agreement could be signed before June 2013, there was no chance of it being signed till 2015 because of the national elections coming up in the first half of 2014. If there is a new government, they are going to look at the whole FTA with a different magnifying glass and there are bound to be several doubts and skepticism. The anti-alcohol lobby and the domestic producers combined are going to pressurize the powers that be, thus lengthening the whole procedure and keeping the uncertainty of the extent of tax reduction on wines alive.

At the end, it’s the bureaucrats who have a say and if common sense prevailed, the Treaty should have been signed last summer. But this is an area where the government dragged its feet in the negotiations in trying to squeeze just the extra little. It could have used the possibility of an impasse as a bargaining tool to set a deadline to finalize. EU negotiators are equally to blame for not being flexible lest their constituents think that they did not drive a hard enough bargain. At least the effort would have given the satisfaction that both sides had tried their best;  a scenario not as easy to fathom in today’s circumstances-especially if the present government loses the elections.

One can only hope that whichever government is formed is strong enough to take a decision and pick up the pieces where it left them and not dither anymore. Signing of the FTA is in the interest of both the parties and a reduction of import duties is an important step towards facilitating import of better quality wines, thus setting up a higher benchmark or quality for the domestic wines.

Subhash Arora  

Tags: FDI, Bharatiya Janata Party (BJP), FTA



Gianander Dua Says:

Mr. Arora, if the Tea by BJp is Named Namo Namo then For sure the insight was that ,if BJP govt comes it will be a boost to the Beverage industry and Specially to wine Industry if this prediction sounds true then for sure the hard work done by the industry to pursue the FDI into the country will be a waste excise and the economy of the country will surely take a back seat.

Posted @ April 15, 2012 10:34


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