Indian retail may lose foreign direct investment of up to Rs 400 crore this fiscal because of last week’s recommendations by the Parliamentary Panel on Commerce, which has opposed further leeway to the entry of international retail brands in the country.
According to global consultancy KPMG, many major Indian retail players are also likely to be affected if the report’s recommendations are implemented, while some foreign players might cut down their investment plans.
“After the IKEA debacle, India Inc could lose as much as another Rs 4 billion (Rs 400 crore) in 2009-10 due to the stand in the parliamentary report,” KPMG advisory service manager Anand Ramanathan said.
IKEA, the Swedish home furnishing major, had last week announced its decision to shelve plans for venturing into single format retailing in India following the panel report.
Following IKEA’s decision, other foreign retailers are also likely to re-visit their plans.
“Carrefour, Cartier, Armani, Tesco and UK-based Curry’s and Sports Direct International could be some of the foreign retail players to cut down their investment in India following the government’s FDI policy on retail,” Ramanathan said.
“The report by the parliamentary committee can force several foreign players to cancel or keep on hold their plans of entering the Indian retail market, specially the ones who aspire to have full ownership of their retail operations,” Ramanathan added.
The Parliamentary Panel on Commerce in its report had opposed further increase in FDI limits in the retail sector.
According to existing rules, foreign players are allowed a maximum of 51 per cent investment in single-brand retail, while for the wholesale cash-and-carry format it is 100 per cent.
No FDI is currently allowed in multi-brand retailing.
Major Indian retail companies including Future Group, Reliance Retail and Shopper’s Stop, besides joint venture players like Metro Cash-and-Carry and Bharti-Walmart, are also likely to be affected, Ramanathan said.
Such a scenario will, however, prove to be a big boon for small retailers and family-owned businesses, as well as some big homegrown players.
“At the same time it will pave the path for the small retailers, vendors and traders to prosper again and retain their hold in the market. Also, some of the existing Indian retail biggies will continue to grow with little market competition and restrictions on new player entry,” Ramanathan said.
According to KPMG, Indian retailers should focus on increasing profits through sales growth rather than merely adopting cost-cutting strategies.
“They (Indian retail companies) should aim to reduce stock-outs, avoid bargain hunting, increase inventory turnover and control shrinkage. In the current scenario, the retailers should also try to re-negotiate the real estate rentals,” Ramanathan added.
Source: Business Standard