Tesco to take India plunge after political assurances

Tesco announced that it had applied to buy a 50 per cent stake in Tata Group’s Trent Hypermarket.

Written by Reuters | Mumbai | Published: December 20, 2013 3:35 am

It took months of arm-twisting and assurances from New Delhi to persuade British retailer Tesco Plc to take the plunge and become the first foreign player to set up a chain of supermarkets in India.

Earlier this year,world No.1,Walmart Stores Inc,walked away from India and few expected any of its rivals to step in before elections due by next May,which could bring to power a government that reverses the opening up of a $500 billion market long dominated by millions of mom-and-pop shops. But on Tuesday,Tesco announced that it had applied to buy a 50 per cent stake in Tata Group’s Trent Hypermarket Ltd to open stores in Maharashtra and neighbouring Karnataka.

The decision marked a victory for the ruling Congress party in securing its first foreign investment victory after staking its political survival on reforming the supermarket sector.

“We were under phenomenal pressure from the Indian government to apply and frankly phenomenal pressure is an understatement,” said a senior Tesco official,who spoke on condition of anonymity. “The pressure was intense on a government-to-government level.” The Tesco spokesperson did not comment on the reasons behind the company’s decision to enter India now.

“We’ve always said we’d like to get more involved in this exciting market and having learnt a great deal through our agreement with Tata,we have taken the decision to make an application to develop a multi-brand retail business in India.”

Tesco is in the middle of a big investment drive to reinvigorate its sales in the UK and despite closing loss-making businesses in Japan and the United States,its move to enter India shows the retailer’s continued ambitions to expand abroad.

Tesco,the world’s third-largest retailer,and Walmart lobbied the Indian government for years to allow global brands into the country.

The door finally opened at the end of 2012 when the government,desperate to attract foreign investment as economic growth fell to its slowest pace in a decade,overrode stiff opposition from coalition allies and opposition parties.

But the government’s plans were dealt a heavy blow in October when Walmart called off its Indian wholesale joint venture and postponed its entry plans,blaming unfriendly regulations and political uncertainty.

Sources at Tesco and Trent said they took a calculated risk by making their application before the elections,but it was a cautious one,deciding to invest only $100 million for now.

“Instead of waiting for another year we said ‘let’s go for it now’,” said an official at Trent,who cannot be named as he is not authorised to speak to the media. Company sources said there had been numerous meetings with the government throughout the year,and talks intensified in recent weeks.

Two government sources said trade minister Anand Sharma met Tesco chairman Richard Broadbent at the Davos World Economic Forum in January and assured him there of “hand-holding” by the government if the company invested in India.

Expect more global chains in multi-brand retail: Sharma

NEW DELHI: After Tesco’s application to open multi-brand retail stores in India in partnership with Tata’s Trent,other major global players are expected to follow suit,commerce and industry minister Anand Sharma said on Thursday.

“We do hope that the other majors in this sector will also come,looking at the potential of the Indian market. The fact that they are coming to a country of 1.25 billion,and a country which is the largest producer of food grains,fruits and vegetables…,” he told reporters here.

“Surely,there is benefit for the investors and it is very clear that when others identify their domestic partners or Indian partners,they will come soon,he added. This is the first application for multi-brand retail since the government relaxed norms last September. PTI

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