Just five months after Wal-Mart pulled out of India because of “regulatory issues” Tesco has confirmed it intends to open a chain of stores on the sub-continent. The Indian government has already approved the plan.
The British company is the first global food retailer to expand into India since the government decided to open up the supermarket sector to overseas players.
The 2013 relaxation of India’s foreign direct investment rules were prompted largely by a cooling-off in the country’s economy. Previously, it was obligatory for foreign supermarkets to source 30 per cent of their products from Indian suppliers.
The government now allows foreign businesses five years in which to reach that target, giving them the option of importing goods from overseas during the expansion. And, for the first time, foreign retailers will also be allowed to open stores in cities with populations fewer than one million.
Tesco — the world’s third biggest retailer and currently in the middle of a multi-billion pound turnaround plan — intends to spend almost £70m to break into India’s closely-protected retail sector. It has already received the approval of the country’s Foreign Investment Promotion Board for a 50 per cent acquisition in the Tata Group’s Trent Hypermarket chain, which runs 16 outlets in southern and western India.
Although Tesco has been in partnership with Tata since 2008, and already supplies much of the produce to its Star Bazaar shops, a Tesco spokesman said it would now start working on the “practicalities” of the new deal which allows it to sell 14 categories of products including tea, coffee, vegetables, fruits, meat, fish, dairy products, wine, liquor, textiles, footwear, furniture, electronics and jewellery.
Despite ongoing protests — both inside the Indian parliament and on the streets outside — the retail relaxation has prompted several other businesses to try their luck in what is seen as a market with vast potential. Marks and Spencer, which already has a presence in the country, plans to double the number of its stores to 80 making India its biggest overseas market.
Another retailer to receive government approval is the Swedish clothing company Hennes & Mauritz. It already has branches of its H&M stores in 53 countries and intends to invest £70m to open 50 outlets across India’s biggest cities.
The foreign investment board has also rubber stamped a proposal by the British telecoms group, Vodafone, to take full ownership of its Indian subsidiary. Unlike retail investments, Vodafone — credited with launching the mobile phone revolution 30 years ago this year — needs to have its deal sanctioned by the government before it can proceed.
The FIPB has so far considered 12 applications by foreign companies. All the deals are seen as a vote of confidence in India’s slowing economy which has struggled to attract foreign investment in the past because of restrictive bureaucracy and political opposition.
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