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Email Author
New Delhi, July 27, 2010

The government¶s proposal to allow foreign direct investment (FDI) in multi-brand retail may have prompted
strong opposition from many quarters, but large domestic retailers, keen to tap new sources of funds, aren¶t
complaining. Several domestic retail chains had to slow down their original plans
to open large format stores as the global economy plunged into recession, sharply reducing new fund avenues.

³All retailers need funds and expertise to spruce up their back-end supply chain and other related operations.
These investments have a long gestation period before they can have a positive impact on a retailer's profits,´
Arvind Singhal, chairman of consulting firm Technopak Advisors told Hindustan Times.

Many cash-starved retailers are seeking to ink deals with potential investors as they struggle to honour bank
debt repayment commitments.

³The move (allowing FDI in multi-brand retail) could instill new life in the expansion plans and bring in
international best practices of organised retail in the country,´ said R.C. Agarwal, chairman and MD of Vishal
Retail. The company is believed to be talking to a clutch of potential investors to infuse cash to repay bank
loans.

Joint ventures with multinational retail giants will also allow Indian companies to acquire technical and
managerial know-how on supply chain and back-end operations, Singhal said.

   

   
  

    


Email Author
Amritsar/New Delhi, July 25, 2010

The government has raised the pitch for opening up the country's retail sector for foreign direct investment
(FDI) but industry watchers cautioned that the expected gains to farmers and consumers can only come through
a seamless back-end supply chain, which is still some distance away.
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Lack of clarity on government policy on FDI in retail may have forced logistics majors to defer planned
investment to set up cold-chains and warehouses across India. This means that prices of goods may not plunge
immediately after the flood-gates for foreign investment are opened for deep-discount retail mega stores,
experts said.

"Only after five years when a company had been investing into the development of its back-end operations can
it be in a position to impact prices," said Arvind Singhal, chairman of consulting firm Technopak Advisors.

In a discussion paper released earlier this month, the department of industrial policy and promotion (DIPP) said
FDI in retail may be an efficient means of addressing the concerns of farmers and consumers.

"Opening FDI in retail could also assist in bringing technical know-how to set up efficient supply chains, which
can act as models of development," the discussion paper said.
The price advantage for consumers and agriculture income gains will only kick-in once retailers start procuring
directly from farmers through an efficient supply chain.

Hindustan Times carried out an on-the-spot assessment in Amritsar in Punjab, India's grain bowl, of how a
retail supply chain works and gains from it.

"The corporate retail chains are very touchy on the quality of fruits and vegetables," Avinash Singh, a
middleman (aarhatiya) at the local fruits and vegetable mandi at Amritsar told HT. "A minor blemish on the
produce and they simply drop it."

Singh added that middlemen such as him usually keep the best produce for their corporate retail customers who
purchase in bulk from the mandis.

"At least 75 per cent of the fruits and vegetables sold at organised retail outlets around the city are procured
from the local mandis at existing mandi price," Singh added.

Wal-Mart, the world's largest retailer which has set up a cash-and-carry wholesale store in Amritsar, confirmed
that it does source from the local mandis but added a major portion of perishable fruits and vegetables are
sourced directly from the farmers.

"If the corporate retailers develop their own back-end infrastructure the price of perishables will come down by
at least 15-20 per cent. Also there will not be any short-term spike in prices," said Singhal.

Domestic corporate retailers have so far chosen to adopt an ad hoc mix of mandis and farmers meet their supply
needs, rather then invest in dedicated cold-chain infrastructure allowing them to offer offered discounts in bits
and pieces.




    ½ 
By Urvashi Jha & Sreerupa Mitra Jul 14 2010 , Hyderabad/Bangalore

ags: News

As the government awaits feedback on the discussion paper on foreign direct investment (FDI) in organised retail,
regional companies that have tasted success in the business say they could do with some foreign money.

hey believe money and know-how from abroad will help them scale up, not possible now because their limited access
to domestic funds.

Big Apple, Nilgiri͛s, Heritage Fresh and Varkeys are but a few of profitable regional food and grocery chains that are
more than willing to work hand-in-hand with foreign retailers.

hey expect regulatory changes in the retail sector in the long term but want to grow organically, as opposed to the
much bigger national chains that may be thinking of acquisitions as a way to grow.

So, for the regional chains, raising funds from foreign retail companies is a good option. Besides ensuring funds, this will
also help improve the standards of their business.
According to regional retailers, the limited access to private equity (PE) investors makes FDI an obvious route to take to
scale up in their core markets. Sandwiched between national players and kirana stores, these chains believe their long-
standing relationship with consumers will stand them in good stead in competitive times ahead.

Prabhu Ramachandran, director of the 100-year old Nilgiri͛s, India͛s first self-service supermarket that currently runs 90
establishments in the four southern states, sees FDI as being of immense help.

He told Financial Chronicle that India being an agrarian economy, the entry of big multinational players would only assist
both national and regional chains to scale up.

͞But being a regional player has its own advantages. We know the market better and our brand positioning is very
strong,͟ he said.

herefore, if FDI is permitted, his company will look at establishing synergies with major international retailers. PE firm
Actis has a controlling stake of 65 per cent in Nilgiri͛s.

Kerala has been a hotbed of popular opposition to organised retail. Yet, regional retail brand Varkeys is running a
thriving supermarket business there since 1984. It operates 59 food and grocery outlets.

According to
oby Alapatt, managing director of Varkeys Retail Ventures, retailers have very limited funding avenues.
͞We are not open to selling our business to a national retailer and PE investors are few and far between.
herefore, FDI
will enable us to go national in the long term,͟ he said.

Varkeys is open to diluting 25 per cent in the company if that furthers its plans to have 100 outlets in Kerala in four
years.

Express Retail Services, which operates the Big Apple chain in Delhi, thinks that PE players will come with open purse
strings if the FDI regulations are eased.
he company plans to take the store count to 132 in two years from 42 now.

Anand Murthy, president of Rs 120 crore Express Retail Services said, ͞Retail is an investment hungry business and with
access to funds we could look at replicating our model in other neighbouring states.͟

he Hyderabad-based Heritage Foods that launched its organised retail chain four years ago with stores called Fresh@--
changed to Heritage Fresh since -- backs FDI.

S Jagdish, chief operating officer for retail at Heritage Foods, said, ͞


he experience of several countries speaks volumes
for the advantages of FDI. So there is nothing to fear.͟

He said regional players had found a way to connect with consumers. His chain͛s focus is to remain profitable at the
store level. ͞National retailers can boast of pan-India presence but we regional retailers prefer profitability at the store
level to pan-India presence,͟ he added.

he Rs 225 crore Heritage Foods operates 75 outlets in Hyderabad, Bangalore and Chennai.
he company says that it
has achieved profitability in all its stores.

According to Debashish Mukherjee, a consultant with A


Kearney who tracks retail, regional retailers score with their
local brand positioning, especially in food and grocery, while a national retailer has the benefit of scale and cost savings.
͞So both can co-exist even when FDI is implemented in retail,͟ he said.


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Tanu Goyal

The Government is soon expected to come out with a concept paper on the retail sector that would particularly
look at relaxing FDI norms in this sector. There are still doubts on whether this is a move to relax FDI norms or
just another forum to reiterate what has been repeatedly said, µno further liberalisation in retail'.

India's FDI regime in the retail sector is constantly under the review of the Government. It has maintained a
restrictive stance in the retail policy despite the popular belief among policy makers that single-brand retail is
doing well in India.

Foreign investments in this sector have been increasing consistently and have been less susceptible to external
shocks. However, will the popular belief be put on paper this time?

FDI on the growth path

In 2006, the Government for the first time eased retail policy in the country by allowing up to 51 per cent FDI
through the single-brand retail route. Since then, there has been a steady increase in FDI in the retail sector; the
sector's share in total FDI flows into India have increased from zero to 0.2 per cent in a two-year period. The
cumulative FDI in single-brand retail stood at $190 million in February 2010.

FDI data since 2007 demonstrates a steadily rising trend in the single-brand retail sector. Besides, there has
been less volatility in FDI flows even during periods of world-wide recession. The retail policy relaxation was
followed by a series of doubts about the sustainability of FDI in the retail sector.

Moreover, the global slowdown that adversely affected demand in most economies raised concerns regarding
the flight of capital from the Indian retail sector.

Contrary to the belief, foreign investment in the single-brand retail sector in India has been resilient to external
shock. Given its large population and rapidly expanding middle-class, there is growing demand and a market
for almost everything in the country. As a result, when most countries were facing a demand crunch, foreign
brands rushed in to invest in the Indian market, illustrated by a clear peak in FDI during mid-2008, in the
accompanying figure.
From 2006 to March 2010, around 94 foreign players applied to invest through the single-brand route, of which
57 entities got approval.

The percentage increase in FDI flows in the retail sector over the last two years has been higher than that in
sectors such as the services sector, trading and telecommunications, which have a much higher share in the
country's overall FDI.

Moreover, direct investment, which is the key source of foreign capital in the retail sector, is less volatile than
equity or institutional investment. As a result, there is a lower risk of the market being affected by the adverse
effects of stock market changes and consumer confidence.

According to a 2010 A.T. Kearney report, India ranks third after China and the US on the FDI Confidence
Index while it is the top location for non-financial investment. The study found that if the Indian retail sector
becomes more open in future, it could become a vital, high potential market like China.

Foreign investors in China are lured by the increased domestic demand and high potential for retailers,
contributing to overall growth in China. In addition to this, foreign retailers in China have increased their
sourcing from Chinese SMEs, which now have a 70 per cent share in exports.

Over the past few years, the retail sector in India has been successful in attracting and retaining foreign
investment. The Indian market is emerging as an attractive destination for foreign investors interested in
investing in the retail sector.

In such a scenario, given the forthcoming opportunities, policy restrictions would not be the best way to protect
traditional retailers.

The Government should, in turn, impose regulations such as sourcing requirements, zoning regulations and
back-end investment requirements to protect traditional retailers.

This could, in fact, help in SME sourcing from India, as in the case of China. In countries such as China, the
retail sector has been a major propellant of growth and with a more liberal FDI policy, the story can be repeated
in India.

(The writer is a researcher at ICRIER.)



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Our Bureau
New Delhi, July 6

Braving all political odds, the Government, on Tuesday, took the first step towards opening up foreign direct
investment in multi-brand retail.

Advocating that FDI in retail would bolster farmers' income, tame inflation and bring technical knowhow, the
Government has kicked off a discussion to formulate the rules of the game, including imposition of FDI cap
and riders for local sourcing and rural job creation.

The move was eagerly awaited by foreign players such as Carrefour, Wal-Mart, and Woolworths, that have
been angling for a larger play in the market. Even domestic retailers such as Future Group and Aditya Birla
Retail have been lobbying hard for FDI in the sector.

While foreign investment in multi-brand retail is prohibited now, the Government allows 51 per cent FDI in
single brand retail and 100 per cent in wholesale cash-and-carry trade.

³Keeping in view the large requirement of funds for back-end infrastructure, there is a case for opening up of
retail sector to foreign investment. At the same time, there is a view that this may be more appropriately done,
in a calibrated manner,´ the Department of Industrial Policy and Promotion (DIPP) said in its discussion paper
on the controversial issue, which has, in the past, triggered widespread resistance from political parties such as
the BJP and the Left.

Detractors have been arguing that such a move could hit the fortunes of 1.3 crore small retailers across the
country.

Interestingly, Tuesday's discussion paper has not recommended a specific FDI ceiling; it has, instead, sought
public opinion on the same.

³It appears that the Government is under pressure from MNC retailers to open up the sector. We also have been
demanding opening up of multi-brand retail to step up investment in back-end and front-end. If the Government
does it in a calibrated and graded manner, it would be a welcome step,´ said Mr Thomas Varghese, Chief
Operating Officer, of Aditya Birla Retail and Chairman, CII Committee on Retail.

However, he rued that the concept paper, though comprehensive, has not spelt out a clear direction for FII
portfolio investment in retail ± which is what many domestic retailers have been clamouring for.

The discussion paper talks of earmarking 50 per cent of FDI inflows for building up of back-end infrastructure,
logistics and agro processing; and even moots riders such as reserving 50 per cent jobs in FDI-funded retail
outlets for rural youth.

Other issues up for debate include identifying possible locations for such stores. The current thinking is that
these stores could initially be allowed to come up in cities with population of over 10 lakh, particularly on the
outskirts. Also, to provide a fillip to the SME sector, the Centre has recommended sourcing a percentage of
manufactured products from the domestic SMEs. Over the last few years, foreign investment in retail has been
a politically sensitive issue. Concerns that foreign retailers, with their financial prowess, could rob the kirana
stores and pushcart vendors of their livelihoods, meant that the Government had to tread cautiously on the
issue.

Last year, a Parliamentary Standing Committee headed by BJP's Dr Murli Manohar Joshi had sought a blanket
ban on large corporate houses and MNC retailers entering the trade.

However, earlier this year, the Prime Minister, Dr Manmohan Singh, called for a debate on the opening up of
the sector, pointing to the vast difference between farm gate and consumer prices.
On similar lines, the DIPP's discussion paper points out that the farmers get just a third of the total price paid by
the final consumer, as against two-thirds realised by farmers in nations with a higher share of organised retail.
FDI in retail, therefore, could be an efficient way of addressing concerns of farmers and consumers, it said.

³Allowing FDI in multi-brand retail in India is a step in the right direction«The FDI percentage could be
between 49-51 per cent based on all considerations and the conditions should not be too onerous,´ said Mr
Rajan Bharti Mittal, President of FICCI and Vice-Chairman of Bharti Enterprises, which has a joint venture
with Wal-Mart.

The Indian retail industry is the fifth largest in the world. The organised retail segment in India accounts for less
than five per cent of the total retail market, but it is expected to grow at a compounded annual rate of 40 per
cent to $75 billion by 2015, from less than $20 billion now, according to estimates by various brokerage
reports.

Calibrated move to open FDI in retail a good start: Sunil Mittal

Press Trust of India, 07 July, 2010

A calibrated step to open FDI in multi-brand retail will be a good start to attract overseas investment in the
sector, according to Bharti Group, which runs a wholesale joint venture with WalMart in India.

Bharti Group Chief Sunil Mittal said he would not even mind if some conditions are put while relaxing the FDI
norm, as long as it is being opened up. "I think anything is fine. To start with...a calibrated approach is fine," he
said when asked what percentage of FDI in multi-brand retail should be allowed.

On Tuesday, the government threw open a debate on opening up the retail sector to foreign investment saying it
would not only help farmers earn more but also keep the price-line under check, after keeping the lid on FDI in
the politically sensitive multi-brand retail business.

At present 51 per cent FDI is allowed in single brand retail but prohibited in multi brands. In the wholesale
business, 100 per cent foreign investment is permitted. Stressing that the retail sector requires improvement not
only in the back-end logistics but also at the front-end, Mittal said a lot of investments are needed for it and
"foreign direct investment (FDI) is a good source for it".

He said the last retail point too should be able to handle fresh produce, whether its meat or poultry or farm
products without wastage, as is being done in 'subzi mandis'. "Until we have the end-to-end possibility it won't
work," Mittal said.

In India, post harvest losses of farm produce, specially fruit and vegetables and other perishables have been
estimated to be over Rs 1 lakh crore annually. "I personally believe that back-end supply of the food chain right
from the farm to warehouses to trucking to cold chain and bringing it up to the retail shops is absolutely
essential. For that we need investment...," Mittal added.
Reacting to the government's steps towards allowing FDI in multi-brand retail, Mittal said: "I'm absolutely
confident that this will be extremely good for the development of supply chain of food and farm produce in the
country. No doubt about it. In two three-years time people will start seeing the result."

Bharti Group has a 50:50 joint venture with the world's largest retailer Wal-Mart in cash and carry business,
which
runs the 'Best Price' stores in India.

Read more at: http://beta.profit.ndtv.com/news/show/calibrated-move-to-open-fdi-in-retail-a-good-start-sunil-


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Pantaloon Retail India Ltd., the nation¶s largest publicly traded retailer, and local rivals gained after the trade
ministry invited views on allowing companies such as Wal-Mart Stores Inc. and Carrefour SA to start retail
stores.

Pantaloon climbed 5.2 percent to 464.65 rupees, the highest since May 23, 2008, at close in Mumbai. Shopper¶s
Stop Ltd. gained 11 percent to 625.95 rupees, its biggest gain since Nov. 12. Trent Ltd. advanced 7.4 percent.

³The government is moving toward calibrated liberalization in retail,´ said Abhishek Ranganathan, a Mumbai-
based analyst at MF Global Sify Securities India Pvt. who has a ³buy´ rating on Pantaloon, Shopper¶s Stop and
Trent. ³Indian retailers have a lot to gain from technological investments by foreign retailers.´

Foreign direct investment in retail will help fund investments in farms, storage chains and reduce prices, the
Department of Industrial Policy and Promotion said in a discussion paper. The department requested comments
from interested parties such as local and overseas retailers and industry associations.

Wal-Mart and rivals including Carrefour and Tesco Plc claim their supply-chain networks will allow them to
reduce prices in India, the world¶s second-most populous country, and help farmers get a better price for their
produce by cutting out middlemen. India¶s laws, aimed at protecting owners of small shops, bar foreign
retailers from owning stakes in multibrand retail chains or opening stores.

Back-End Logistics

³The discussion paper highlights the requirement of significant investment in back-end logistics and
infrastructure,´ Manoj Menon and Amrita Basu, analysts at Mumbai-based Kotak Institutional Equities, wrote
in a note to clients today. That investment may improve efficiency in the value chain and likely benefit ³both
the producer and consumer,´ they said.

Barred from opening retail stores in India on its own, Wal- Mart has partnered with telecommunications
billionaire Sunil Mittal¶s Bharti Enterprises Pvt. The two companies are jointly opening wholesale stores and
building a supply-chain network.
In April, Wal-Mart, based in Bentonville, Arkansas, and Bharti opened a second wholesale store in the northern
state of Punjab. Bharti-Walmart, an equal joint venture, plans to have as many as 15 such stores by March
2012.

Paris-based Carrefour said in May it may opt for a franchise model in India, allowing the world¶s second-
largest retailer to expand in the market while meeting laws barring foreign companies from owning multibrand
stores.

Carrefour Wholesale

Carrefour also plans to open its first wholesale outlet in New Delhi in the next few months, Jean Noel
Bironneau, managing director of the company¶s operations in India, said.

The French retailer may sign an agreement with Pantaloon Retail to set up franchise stores, the Economic
Times reported in January, citing an unidentified executive familiar with the development.

The observations of the department shouldn¶t be construed as the views of the government, according to the
paper. Stakeholders can submit their comments by the end of the month.

Overseas investment in the retail industry is limited to single-brand merchants in a nation where chain-store
sales may rise as much as 35 percent a year until 2015 to $80 billion, according to a study by consultant
McKinsey & Co. in August 2008.

Rising Inflation

Pressure is mounting on Prime Minister Manmohan Singh¶s government to quell rising inflation. India¶s
benchmark wholesale-price inflation unexpectedly accelerated to 10.16 percent in May from a year earlier, near
a 17-month high, government data showed.

The Congress Party-led government still needs to obtain political backing from its allies for allowing foreign
retailers to invest in India. Singh¶s Congress party¶s best election win in 18 years last May increased its tally in
parliament to 207 in the 543-member lower house, still short of a clear majority.

Opposition from former communist allies had stalled the previous Singh-led government from proceeding with
plans including selling stakes in state-run enterprises and allowing foreign investment in retail.

India's retail sector is largely closed, with 51% foreign direct investment (FDI) allowed only in single-brand
retail and multi-brand retail restricted to cash-and-carry outlets.

The latest government move has come in the form of a discussion paper by the ministry of commerce and
industry, requesting comments from stakeholders. The paper has favoured allowing 51% FDI in the multi-brand
retail sector which would allow the global giants to directly set up shops in the country.

Many Indian firms, such as Mukesh Ambani's Reliance Industries, the Aditya Birla group and Kishore Biyani's
Future group have already made their mark in India's fast-growing organised or chain retail business. Most of
them were forced to suspend their expansion plans over the last two years due to lack of cheap credit, even as
they faced tough times.

Five years ago, the first UPA government had mulled over allowing 51% foreign direct investment in multi-
brand retailing in the country. But it had not made much headway in view of opposition from its Left allies at
that time. The Left parties and the main opposition BJP are opposed to opening up multi-brand retail, a sector
that employs millions and is dominated by small kirana stores.

In the latest discussion paper, the government pointed to the experience of China, which started allowing
minority foreign investment in retail in 1992 and gave foreign firms full access in 2004. The discussion paper
pointed out that even though the Chinese retail chains have been growing at a blazing pace, the traditional
shops too have been growing, blunting criticism that both cannot co-exist.

The discussion paper said foreign investment is imperative to meet the huge funding needs of the sector to
provide dynamism and efficiency and generate employment in rural areas.

India is losing fruit, vegetables and agricultural produce worth Rs 1,00,000 crore every year and adding cold
chains and back-end infrastructure could reduce losses by more than half, it added.

Read more at: http://beta.profit.ndtv.com/news/show/retail-stocks-rise-as-govt-mulls-fdi-in-multi-brand-stores-


81208?cp

Ministry pushes for FDI in multi-brand retailing

Press Trust of India, July 06, 2010 (New Delhi)

Making out a strong case for opening up the multi-brand retail sector for foreign investment, the Industry
Ministry today sought the views of different stakeholders asking whether foreign direct investment in the sector
should be permitted.

On this politically sensitive issue, the Department of Industrial Policy and Promotion (DIPP) said in a
discussion paper, "FDI in retail may... be an efficient means of addressing the concerns of farmers and
consumers... Opening FDI in retail could also assist in bringing technical know-how to set up efficient supply
chains, which can act as models of development."

"It would also... assist in lowering consumer prices/inflation," it said. The ministry has sought stakeholders'
comments by July 31.

Strident political opposition had earlier forced the government not to put it in its reform agenda. At present,
FDI in multi-brand retail is prohibited in India. In multi-brand retail, a retailer can sell different brands under
the same roof.

However, the government allows 51 per cent FDI in single brand retailing and 100 per cent in wholesale trade.
This has led to global giants like Metro of Germany taking the µcash and carry¶ route to establish business in
India. In the µcash and carry¶ route, retailers are allowed to sell multi-brand goods to institutional buyers like
hotels, restaurants, caterers and traders.

Read more at: http://beta.profit.ndtv.com/news/show/ministry-pushes-for-fdi-in-multi-brand-retailing-80929?cp

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