Uniqlo may unveil India plan, eyes 100 stores High fiscal deficit, inflation may cap India’s rating upgrade: Moody’s

LOVE IN TOKYO As Modi serenades Japanese money, Asia’s largest clothing retailer may overtake Ikea as top investor

Japan’s casual wear chain Uniqlo is expected to open 100 stores across India — and make the biggest-single dose of foreign direct investment (FDI) in the retail sector into the country.

Uniqlo has mixed low-cost manufacturing and affordable fashion to build a global business that matches the likes of US-based Gap and Spain’s Zara.

To p e xe c u t ive s o f Fa s t Retailing, Asia’s largest clothing retailer that owns Uniqlo, short for “unique clothing”, met senior government officials during Prime Minister Narendra Modi’s visit to Japan this week and indications are that plans have been firmed up.

“There were discussions on Uniqlo’s investment plans in India. Uniqlo is expected to open a chain of around 100 stores across India,” a top government source told HT. He refused to divulge further details.

This planned investment is expected to surpass the ` 10,500 crore committed by Swedish furniture retailer Ikea that plans to open 25 stores by 2020 in India.

A year back the Japanese firm had postponed its India plans but seems to have revived it. India had in January 2012 allowed 100% FDI in single-brand retail.

Uniqlo did not comment on the fresh round of its meetings with Indian officials.

The stage was set in June this year when Uniqlo’s chairman Tadashi Yanai discussed his company’s plans with Modi soon after he swept to power in elections. Modi with his “Look East” policies, has promised a special window to help Japanese companies.

Billionaire Yanai, whose net worth is estimated at $17 billion, is the president of Fast Retailing, which controls a bunch of companies that includes Uniqlo, Helmut Lang, Theory, and J Brand. Tokyo-listed Fast Retailing had revenues of $12.5 billion last year.

“The company aims to source garments from India,” the Prime Minister’s Office had then said in a statement after the meeting between Yanai and Modi, who has been wooing FDI with a “make in India” tag.

The statement had said Modi had highlighted the advantages that India enjoys in the garments sector, including “availability of cotton, skilled manpower, robust infrastructure, a big domestic market and good ports for exports.”

Uniqlo outsources manufacture but keeps a close check on everything from design to costs and operates through factories in China, Vietnam, Bangladesh and Indonesia.

Yanai has in the past expressed his desire to overtake Spain’s Inditex, which owns Zara.

Uniqlo’s stores are spread across 16 nations that include Japan, China, Hong Kong, Taiwan, Korea, UK, US, France, Germany South Korea, Singapore and Russia.

India has in recent years been a hot destination for textile and garment sourcing. Various multinational brands such as Zara, Next, Gap, Marks & Spencer and Ralph Lauren source substantially from the country. India’s textile and clothing business is estimated to generate revenues of around $90 billion (`540,000 crore) which is 5% of the GDP — and is considered a big job spinner through labour-intensive manufacturing.

Despite an impressive 5.7% GDP growth rate in the first quarter of 2014-15, high fiscal deficit and inflation remain major concerns, thereby limiting the chances of an upward revision in India’s sovereign ratings, Moody’s said on Wednesday.

“We forecast fiscal (deficit), inflation and infrastructure metrics to remain weaker than the median for similarly rated peers…While stronger growth will help counter-balance these credit challenges, they limit further upward momentum in the sovereign rating,” Moody’s Investors Service said in a note issued from Singapore.

Inflation measured by consumer price index continues to skirt around the 8% mark, with upward pressures being exerted by food prices due to weak monsoon.

Finance minister Ar un Jaitley recently said that the fiscal deficit target of 4.1% of GDP for the current fiscal would be adhered to.

Moody’s has a ‘Baa3’ rating on India with a stable outlook. It said that the 5.7% GDP growth in the April-June quarter was in line with its view that growth deceleration to sub-5% levels would reverse over time. Hence, it has maintained a “stable outlook” despite issues such as currency volatility, declining private and public investments and poor market sentiment, it added.

The rating agency also said that the macroeconomic outlook would improve if the government was able to “implement policies that ease inflationary pressures and increase infrastructure investment”.

Current account deficit, the gap between dollar inflows and outflows fell to 1.7% of GDP during the Arpil-June quarter.

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