INDIA – Following the government’s announcement that the policy to allow 51% foreign direct investments (FDI) to retail has been suspended, British retailer Tesco has halted plans to set up cash-and-carry stores in India.
Tesco currently has a franchise agreement with Tata-owned Trent, but has been looking at entering the Indian retail market on its own for a number of years now.
When the Indian Cabinet first announced in end-November that it had decided to allow FDI of up to 51% in multi-brand retail and single-brand retail, foreign retailers including Carrefour, Wal-Mart, Metro and Tesco warmly welcomed the news.
However, the government - under immense pressure from opposition parties and more importantly, its own allies – changed its mind the following week and said the FDI decision has been “suspended till a consensus is brought among various stake holders”.
By the afternoon of the following Monday, local retailers – the potential partners of foreign supermarkets who had seen their stocks soar the previous week – were all down, with India’s largest retailer, Pantaloon, down the most, at 11.2%. Shoppers Stop, Koutons, Trent and Vishal Retail were down 4.4%, 6.49%, 1.98%, and 6.95% respectively, in comparsion to the Bombay Stock Exchange’s benchmark Sensex, which was down only 0.05%.
Sources in the know say that Tesco has now shelved plans to set up cash-and-carry stores and will instead focus on setting up warehouses and back-end infrastructure for the Star bazaar hypermarkets run by Trent.
Besides its franchise with Trent, Tesco also has a sourcing hub which procures goods worth £270 million from India, as well as a global support centre – Tesco Hindustan Service Centre - in Bangalore which employs more than 4,500 people who develop solutions for Tesco stores worldwide.
Meanwhile, other foreign retailers are keeping to their store expansion plans.
Metro says it intends to open 50 stores in the next four to five years to add to it current eight outlets, while Wal-Mart plans to open 20 wholesale centers in the next two years with its local partner Bharti Enterprises. Carrefour, which opened its first cash-and-carry centre in December 2010 and the second in Jaipur last month, wants to open a dozen more in the near future.
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