Tesco Upbeat on India Despite BJP’s FDI Stand
British retailer to renew focus on India even as ruling party stays opposed to FDI in multi-brand retail for now
British retailer Tesco remains upbeat about its prospect in India despite Bharatiya Janata Party, which will lead the next government in the country, saying it will not allow foreign direct investment (FDI) in multi-brand retail. “We firmly believe that our partnerships in both China and India will allow us to capitalise on these enormously exciting markets in a way which is disciplined in our use of capital and focused on profitable growth,” Philip Clarke, chief executive officer at Tesco, said in the company’s 2014 annual report released on Thursday.
The world’s second-largest retailer has outlined India, along with China and Turkey, among markets it wanted to refocus for a more profitable approach to growth.
“Many of our choices this year — to enter partnerships in China and India or to invest modestly in an internet startup in South East Asia — reflect this philosophy of establishing a position of opportunity and testing returns against our criteria as a basis for building long-term, value-enhancing positions,” Tesco chairman Richard Broadbent is quoted as saying in the annual report.
In March this year, Tesco entered into an agreement with Tata Group’s Trent to form a 50:50 joint venture with Trent Hypermarket, to become the first (and so far only) foreign supermarket chain to have applied for and received a nod to set up retail shop in the country after India allowed foreign players to own up to 51% stake in local ventures in 2012, but with a lot of restrictions.
The BJP, in its election manifesto, had said it will not allow FDI in multi-brand retail, making the future of the Tesco-Trent retail ven- ture uncertain. Some industry experts believe the prime minister-elect, Narendra Modi, will rather tweak some rules in retail FDI policy than disallowing it altogether. “Modi will surely not do anything which is detrimental for retail sector and its potential of job creation. At the same time, he is concerned about FDI's possible impact on small enterprises and traders. So, Modi will have to find a middle path by tweaking some rules in FDI policy in a way that won't antagonise either foreign investors or small scale business operators,” said Ruchi Sally, director at boutique retail consultancy Elargir Solutions. Tesco-Trent combine, which has announced investments of £85 million in retail, plans to add at least five stores in markets such as Maharashtra and Karnataka each year. Tesco had a tie-up with Trent since 2008 to provide backend support and retail expertise to the firm’s Star Bazaar hypermarkets.