Tesco’s $110-m Re­tail Roll­out Stays on Course

To open stores in JV with Trent af­ter govt of­fi­cials as­sure co that a pol­icy re­ver­sal with ret­ro­spec­tive ef­fect is un­likely

The Economic Times - - Companies -

DILASHA SETH & RA­SUL BAILAY

Un­de­terred by the BJP’s ap­par­ently un­yield­ing stance on for­eign di­rect in­vest­ment (FDI) in multi-brand re­tail, Tesco is go­ing ahead with its pro­posed $110-mil­lion in­vest­ment to open stores in a joint ven­ture with Tata’s Trent Hyper­mar­ket. This fol­lows as­sur­ances by govern­ment of­fi­cials to the UK-based re­tailer that even if the pol­icy is re­versed, it won’t be done with ret­ro­spec­tive ef­fect. Com­merce min­is­ter Nir­mala Sithara­man had said the govern­ment won’t al­low FDI in the sec­tor as it would hurt small traders and farm­ers, which is in line with the BJP man­i­festo, but she didn’t say if the ex­ist­ing rules would be amended. Law and tele­com min­is­ter Ravi Shankar Prasad told re­porters on Wed­nes­day that ret­ro­spec­tive changes in law should nor­mally be avoided, “as it is very ev­i­dent that In­dia needs for­eign in­vest­ment”. Aper­son in­volved with Tesco’s In­dia ven­ture said the ven­ture was ex­pected to pro­ceed un­less there was a pol­icy hitch. Of­fi­cials are con­fi­dent that the first for­eign in­vest­ment in the multi­brand re­tail sec­tor will go ahead. “Yes, we have un­of­fi­cially spo­ken to Tesco in this re­gard. They seem keen to bring in the money,” said a se­nior govern­ment of­fi­cial. “Ap­proval has al­ready been granted to Tesco and they can bring in the money. Even in the worst-case sce­nario that the pol­icy is re­versed, it can­not be ret­ro­spec­tive in na­ture un­der any cir­cum­stances,” said the of­fi­cial. In fact, some ex­perts are of the view that Tesco will gain a first­mover ad­van­tage, since it will be the only for­eign re­tailer in the multi­brand space to have ap­plied for and re­ceived ap­proval af­ter In­dia al­lowed 51% over­seas par­tic­i­pa­tion in lo­cal su­per­mar­ket ven­tures in Septem­ber 2012. On Wed­nes­day, the Com­pe­ti­tion Com­mis­sion of In­dia cleared Tesco’s pro­posal to ac­quire a 50% stake in Trent Hy­per­mar­kets. Last De­cem­ber, the for­mer UPA govern­ment had ap­proved Tesco’s ap­pli­ca­tion to in­vest about $110 mil­lion in a 50:50 joint ven­ture with Trent Hyper­mar­ket. “We’re pleased to hear that the Com­pe­ti­tion Com­mis­sion of In­dia has ap­proved the pro­posal for Tesco to form a joint ven­ture busi­ness with Trent, part of the Tata Group. It’s a big step to­wards the for­ma­tion of this ex­cit­ing part­ner­ship. Any fur­ther an­nounce­ments will be made in due course in the ap­pro­pri- ate way,” a Tesco spokesper­son said in an e-mailed re­ply. In a bid to make the Trent-Tesco ven­ture FDI com­pli­ant, Trent Hyper­mar­ket has al­ready trans­ferred its four stores in Gu­jarat and Tamil Nadu — two states where FDI in su­per­mar­kets is barred — to a sub­sidiary Fiora Hyper­mar­ket.

“It is dif­fi­cult to stop them now. Though chances of a pol­icy re­ver­sal look bleak, Tesco is in a strong po­si­tion. The law can be ap­plied retro- spec­tively strictly in cases of in­ter­pre­ta­tional is­sues. Ret­ro­spec­tive changes are clar­i­fi­ca­tory in na­ture,” said a govern­ment of­fi­cial. In 2012, the In­dian govern­ment amended its in­come tax law ret­ro­spec­tively and re-opened an .` 8,000crore tax li­a­bil­ity dis­pute with Bri­tish telco Voda­fone. The move sparked an in­ter­na­tional row and has been blamed for un­der­min­ing busi­ness sen­ti­ment. One of the com­pro­mise op­tions be­fore the govern­ment is to roll back FDI in the sec­tor to a max­i­mum of 49%, which will mean that ma­jor­ity con­trol re­mains with the In­dian part­ner. This will en­sure that In­dia gets cap­i­tal and for­eign ex­per­tise with­out the is­sue be­com­ing politi­cised. ET had re­ported on Thurs­day that the fi­nance min­istry will pro­pose at least 49% FDI in all sec­tors as part of a plan to re­vive in­vest­ment and put the econ­omy back on the growth track.

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