Tesco Plc, the third-largest retailer in the world, says it would be difficult to implement the conditions reportedly mooted by the committee of secretaries (CoS) on foreign direct investment (FDI) in multi-brand retail.
After approving 51 per cent FDI in multi-brand retail, the CoS is said to have suggested stringent conditions for foreign retailers such as minimum investment of $100 million, mandatory investment of at least 50 per cent in the back-end infrastructure, minimum sales of 30 per cent to come from small traders and 30 per cent mandatory sourcing from small and medium enterprises among others.
Though the Cabinet committee on Economic Affairs, the final decision making body on the matter, is yet to clear the riders, the proposals are said to be the basis for the final policy decision.
"Allowing foreign investment in retail would be good for the Indian consumers, but some of the conditions being speculated on could make it difficult to implement,” said a spokesperson of Tesco in a email response.
The government decision to open up FDI in multi-brand retail is crucial for several overseas retailers such as Walmart, Tesco and Carrefour who have been lobbying hard with the Indian government to open up the sector.
Tesco, which has nearly 5,300 stores worldwide, posted revenues of £67.6 billion (Rs 48,672 crore) in FY 2011, nearly one sixth of that coming from Asia. In India, the UK-headquartered retailer has a exclusive franchise agreement with Trent, the main retail arm of Tatas, to provide expertise in supply chain systems, inventory management, marketing and so on to the latter's hypermarkets called Star Bazaar.
For long, Tesco has shown keen interest in investing in Indian retail. In 2008, it said it would set up cash-and-carry stores in Mumbai and other major cities. Besides, it also has its global services arm in India called Tesco Hindustan Service Centre in Bangalore. Last year, Tesco sourced goods worth £250 million from India.
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Some Indian retail majors also say more clarity is required on the conditions mooted by the CoS.
“Monitoring things such as mandatory sourcing from SMEs, capital flows into back-end and sales to small traders will be a challenge. There would have to be a strong monitoring mechanism to track whether these conditions are being followed or not,” said Bijou Kurien, president and chief executive officer, Lifestyle, Reliance Retail, one of the largest retailers in the country.
Vineet Kapila, chief executive officer Spencer's Retail said there should be more clarity on the definition of back-end infrastructure. “It all depends on how do you define background. Clarity is required. If $200 million comes in as FDI and $100 million would have to go the back-end, you can not expect warehouses of $100 million,” he said.
“Again clarity has to emerge on selling to small traders and sourcing from SMEs. Only when we see the fine print, can we comment,” he added.