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
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.