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First-movers to hit the ground running in retail FDI

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Multinational retailers and Indian entrepreneurs who have established back-end beachheads are expected to get the first-mover advantage as India prepares to welcome foreign direct investment in multi-brand retail. Last week, a committee of secretaries approved a proposal to allow FDI up to 51 per cent in the sector, clearing the decks for the final approval from the Union Cabinet.

Four companies are clear front-runners: Bharti-WalMart, Metro AG, Reliance Retail and Future Group. While supply chains are in place or under development for some of them, front-end JVs with foreign retailers in single-brand retail are in operation for others.

It is widely expected that the government will mandate setting up of back-end infrastructure to create more jobs while opening the sector. So, multinationals which are already operating supply chains and selling to retailers in cash & carry formats are expected to hit the ground running as soon as the sector opens up. Metro AG of Germany and Wal-Mart of US already have cash & carry outlets in India. While Metro must find an Indian partner to open retail outlets, Wal-Mart, which has a 50:50 alliance with Bharti for back-end business can tie up with its retail arm to open stores.

Reliance Retail – which has a joint venture with Marks and Spencer – has a vast presence across the country in various formats, and is in a strong position to partner a foreign retailer. Kishore Biyani’s Future group too has a wide network, which can easily attract foreign partners.

Carrefour and Tesco are two of the major multinational retailers which do not have operations here and are waiting to enter.

Industry chambers have welcomed the move to allow FDI into the sector. CII director-general Chandrajit Banerjee said: “It would help get necessary capital infusion along with technology. It would help develop the back-end, including supply chain and help the consumers experience.”

“Opposition parties should also come on board and support the move as it is a very important reform,” said Ficci secretary-general Rajiv Kumar.

Organised retailers too have welcomed the move, even as they keep their cards close to their chests. “I think step by step, we are moving closer to opening multi-brand retail to FDI. This will invite a lot of interest from retailers the world over. Indian retailers might look at having strategic tie-ups with global retailers in home, electronics and sports goods,” Future Group chairman Kishore Biyani said.

Thomas Varghese, CEO of Aditya Birla Retail, said the move is a welcome step. Arvind Singhal, managing director, Technopak Advisors, a consultant to retailers said: “Since the panel has cleared the proposal, next steps will be keenly watched.”

Bijou Kurien, president and CEO (lifestyle) of Reliance Retail said: “The opening up of the sector will see a lot more commitment from multinationals and serious investments on a much larger scale. As for Reliance, we already have aggressive growth plans and will continue to scale our business on our own.”

Source – The Financial Express

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