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 retailer’s 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 Tesco’s foray into India.
“It’s 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 Tesco’s 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. Tesco’s wholesale business also supplies merchandise to Star Bazaar.
The Rs 10,141 crore proposal of British telecom major Vodafone Plc is meant