In what will be a big blow to global multi-brand retailers making them even more wary about investing in India, the Delhi government has decided not to allow them to set up outlets in the capital. New Delhi accounts for a fairly large chunk of 12% of the organised retail market in the country and would have been an attractive catchment for any retailer.
We have written to the department of industrial policy and promotion withdrawing the Delhi governments earlier consent allowing FDI in multi-brand retail, a senior Delhi government official told FE on Monday.
The governments policy allowing overseas retail firms to pick up to a 51% stake in multi-brand retail firms in partnership with Indian players requires the nod of state governments. The previous Delhi government under Congress partys Sheila Dikshit had given its assent to foreign retailers setting up shop in the capital. With Delhi opting out, the number of states that have agreed to allow FDI in retail stands reduced to nine. So far, Congress/allies-ruled states of Maharashtra, Haryana, Manipur, Karnataka, Himachal Pradesh, Assam, Uttarakhand, Jammu and Kashmir and Andhra Pradesh have given their assent.
Since the government threw open the multi-brand retail to FDI in September, 2012, just one global player, the UK-based Tesco, has said it wants to do business in India it plans to buy a 50% stake in the Tata Groups Trent. A senior executive of Tesco said such changes were anticipated and didnt come across as a surprise. Tesco plans to set up its first set of stores in Maharashtra and Karnataka.
Not allowing FDI in multi-brand retail in Delhi has a dampening effect and reinforces the risk factor and foreign retailers will wait until the general elections, says Devangshu Dutta, CEO of Third Eyesight, who points out that even after the Tesco announcement, other retailers havent rushed in. Dutta adds that this move may result in more stores Gurgaon that can absorb Delhis consumption demand.
The Delhi governments stance on FDI in multi-brand retail is not too positive but nothing changes as permitting FDI in multi-brand retail was always a state subject. Although Delhi is a huge market, modern retail penetration has traditionally not been too high in the city, says Mohit Kampani, CEO, Spencers Retail.
This does not affect us as we are not seeking fresh foreign capital, Kampani said, adding that while Delhi is a big market, the