New Orleans Two reports yesterday from Dharmendra Kumar, director of the India FDI Watch Campaign affiliated with ACORN International, point out how far the superstore giants like Walmart, Carrefour, Tesco, and Metro really are from being able to freely enter markets throughout India. This is largely a story that the global business press is missing as they tout the rise and fall of the stock market without trying to understand that there continues to be a huge struggle over these issues of foreign direct investment in multi-brand retail.
First and foremost, when Prime Minister Singh announced that he was pushing forward the modification, he could only do so generally at the parliamentary level. Specifically each of the twenty-eight India states, not to mention the seven territories, has the right to independently decide whether to allow this FDI expansion in their jurisdictions. As of this date, only 11 of the 28 states have indicated a willingness to tolerate such expansion with 17 thus far militantly opposed.
As Dharmendra reported yesterday, there continue to be more roadblocks.
Walmart had teamed up with India-based Bharti in recent years to operate a “cash-and-carry” business that sold only to other businesses and not the general public, something like Sam’s Clubs the United States. The Government had indicated that a “group” business like Walmart-Bharti had certain restrictions, but in recent years the ambiguity of the “group” business definition had allowed them free rein. No more.
To quote from Dharmendra’s report:
On 3rd June 2013, Govt. of India defined Group firms as two or more enterprises that directly or indirectly are in a position to exercise 26% or more voting rights in the other enterprise or appoint more than 50% members on board of directors in the other enterprise. Amidst widespread opposition to the Walmart’s backdoor entry of FDI in Multibrand retail (through Bharti-Walmart, the 50:50 joint venture between Walmart and Bharti for operating Cash-and-carry outlets in India), in April 2010 Govt. of India framed a policy that asked cash-and-carry businesses (Bharti-Walmart) to limit their sale to group firms at 25 per cent of their turnover. In absence of clear definition of what group firms meant Bharti-Walmart’s cash & carry business (20 Best Price Stores) continued to sale almost 85% of their products to Bharti Retail’s 200 Easy Day stores.
Now, Bharti-Walmart will either have to limit its sale to Easy Day to 25 per cent of its turnover or restructure its corporate structure.
There can’t be happiness in Bentonville over this new clarification.
Yesterday the Indian Department of Industrial Policy and Promotion (DIPP) was also meeting and was expected to also propose additional heartburn for the superstore outfits. India FDI Watch expected the following actions:
It is likely that the DIPP
– Would ask global superstores to invest 50% of only the first tranche of investments (minimum $100 million) in back-end infrastructure.
– Would declare that the 51% foreign direct investment limit in multi brand retail is composite one, including FDI and foreign institutional investment (FII).
– Would allow superstores to create back-end infrastructure in states that do not allow any FDI in multi-brand retail
Forcing the big boys to put their investments up front rather than only in the logistics and supply at the backend of a retail operation almost puts a bull’s-eye specifically on the usually smiley-face of Walmart.
There’s a lot more fight to come in India over FDI’s expansion into retail.