Multi-brand FDI retail may be a non-starter

By ZRG | Updated: Oct 12, 2012, 12:57 PM IST

Team ZRG/Zee Research Group

After dithering over it for two years, India finally notified the permission to multi-brand foreign retailers to set shop in the country. But the move might yet be a non-starter given the inherent gaps in the policy framework heralding the entry of big ticket global retailers.

The UPA government pushed through the announcement ringing in a policy which vests the future of global retailers in hands of states, many of whom have expressed virulent protest to FDI in multi-brand retail.

This potentially shrinks the size of the market for foreign retailers significantly as several states are run by various opposition parties in the country.

Worse, the provisions stipulated in the central FDI multi-brand enabling policy, further shrinks the canvas. A Zee Research Group (ZRG) study shows that on ground of all the cities that are eligible to host multi-brand retail backed by FDI, more than half are actually located in non-Congress ruled states.

The analysis unravels that 26 out of the 45 cities eligible to allow FDI multi-brand retail operation in the country are located in states that are ruled by opposition.

Commerce ministry in its FDI notification provided that retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census. As calculated by ZRG, there are only 45 cities in the country having a population of more than 10 lakh. However, states which do not have any city above 10 lakh, population are not counted here.

The FDI enabling policy has also given full freedom to states to take a call on either allowing or rejecting foreign retailers to operate in their states.

Of all states Maharashtra, which is being ruled by Congress NCP alliance, has maximum 10 cities which can allow foreign retailers to open their stores, for they each have 10 lakh plus population.

Uttar Pradesh, however, tops the list of states that are opposed to the proposition. It has six cities that have the eligibility in terms of population while there are four each such cities in Gujarat and Madhya Pradesh. Tamil Nadu (with three eligible cities) and Punjab and West Bengal (with two eligible cities each) too have opposed the move. Bihar, Chattisgarh and Karnataka with one city each, are among other states that have refused to allow foreign retailers.

Post the FDI notification, the UPA government has faced opposition from some of its own allies including SP and BSP party, which unlike TMC in West Bengal continue to be allies of the ruling alliance. TMC led by Mamata Banerjee has pulled out of the government as also the alliance.

Now, even if this political acrimony settles down, foreign retailers like Wal-Mart, which has largest 17 cash and carry stores in operation under a joint venture with India’s Bharti Enterprises since 2007, too may not be able to reap the early entry dividend. This is because quite many of its cash and carry stores are located in states that are opposed to the multi-brand retail backed by foreign investment. Its stores are spread across Andhra Pradesh, Chhattisgarh, J&K, Maharashtra, MP, Punjab, and Rajasthan and UP.

Carrefour, the world`s second-largest retailer after Wal-Mart operating has cash & carry stores in Delhi and Jaipur. Both these states are though under Congress rule. Tesco has had a limited presence in India but it is concentrated in Karnataka which is ruled by BJP.

The retail story so far here has witnessed entry of domestic majors including Aditya Birla Group, Bharti Retail, Future Group, Reliance Retail, Shoppers Stop and Spencer’s (RPG) Retail. Among cities, Hyderabad tops with 85 Indian retailer stores, followed by 76 stores in Delhi and 66 in Mumbai.