UK-based Tesco Plc on Monday became the first global player to get permission to set up a multi-brand retail chain in the country. The Foreign Investment Promotion Board (FIPB) also approved another unrelated investment,that of telecom firm Vodafone to fully own its India arm.
While the Vodafone proposal is by far much larger,the Tesco investment is more appealing for the UPA government to show it can open to foreign investment in a controversial sector. The UK-based retailers entry into India will be keenly watched by other global retail chains such as Walmart,which also had shown interest in the country but is still cautious on the foreign direct investment policy in multi-brand retail.
This is the first application for multi-brand retailing since the government allowed 51 per cent FDI in the segment in September last year. Commerce minister Anand Sharma had also expressed hope that other retailers would follow Tescos foray into India.
Its a welcome move and will encourage other players to consider the FDI policy for multi-brand retail that is often considered to have difficult conditions. In times to come,other retailers may also consider entering the India market following Tescos entry, said Goldie Dhama,executive director,PricewaterhouseCoopers.
The two approvals by the FIPB are expected to bring in nearly Rs 11,000 crore of foreign capital in the outgoing 2013 calendar year.
Tesco plans to initially invest $110 million (about Rs 690 crore) in its multi-brand retail foray to include acquisition of 50 per cent stake in Tata group firm Trent Hypermarket Ltd,apart from investments in back-end infrastructure.
Tesco is pleased that the FIPB has agreed to our proposal. This will now allow us to work on the practicalities of setting up the joint venture with Trent. Any such announcement will be made in the usual way, a Tesco spokesperson noted.
Following the FIPB approval,Trent shares gained 2.03 per cent to close at Rs 1,257.75 on the BSE. Five years earlier,Tesco had announced plans to set up a wholesale cash-and-carry business in India,with an initial investment of up to £60 million in the first two years.
It also entered into an exclusive franchise agreement with Trent to provide expertise and technical capability to support the Indian firm in the running of hypermarket business under Star Bazaar stores. Tescos wholesale business also supplies merchandise to Star Bazaar.
The Rs 10,141 crore proposal of British telecom major Vodafone Plc is meant to raise its stake to 100 per cent in its Indian unit,Vodafone India.
At present,Vodafones direct stake in the Indian unit stands at 64.4 per cent while Vodafone Indias non-executive chairman Analjit Singh holds another 24.65 per cent stake. Ajay Piramal of Piramal Industries has another 10.97 per cent shares in the firm.
We are pleased to have obtained FIPB approval to increase our stake in Vodafone India. The Cabinet Committee on Economic Affairs still has to endorse this decision before either transaction can take place, said a Vodafone statement.
The company had in October announced plans to increase the stake to 100 per cent after the government had in August permitted foreign telecom companies to fully own their Indian ventures. Since the proposal involves an investment of over Rs 1,200 crore,it will now require the approval of the Cabinet Committee on Economic Affairs.
The FIPB has also approved foreign investment proposals of Johnson & Johnson. Meanwhile,the FIPB deferred HDFC Banks proposal to raise FII holding limit beyond the existing 49 per cent in the bank.
* Tesco,the worlds third-biggest retailer (with revenue of £64.826 bn in 2013),which makes about two-thirds of its revenue in UK,is in the midst of a $1.6-bn turnaround plan
* The retail giants India investment follows declining third-quarter sales in all nine of its overseas markets for the second consecutive quartern
* Tesco has stores in 14 countries across Asia,Europe and North America and is the grocery market leader in the UK,Malaysia,Ireland,Thailand