Sagar Malviya, The Economic Times
Mumbai, 23 January 2015
Trent Hypermarket — the equally owned joint venture between the Tata Group and UK’s Tesco — plans to invest Rs 250 crore as the only Indian multibrand retailer with foreign investment aims to open more stores.
The planned expansion is likely to be seen as a test case for the ruling BJP’s stance towards foreign direct investment in the supermarket segment. The party’s stated policy is against FDI in stores selling multiple brands, but industry watchers and experts say the government is unlikely to meddle with Trent’s plan at a time when Prime Minister Narendra Modi is focused on bringing in investment.
Trent’s board has been authorised to raise up to Rs 250 crore through loans, guarantee, securities or way of subscription, according to a company resolution, a copy of which was filed with the Registrar of Companies earlier this month.
The board passed the resolution on January 5. In December 2013, the previous Congress-led government had approved Tesco’s application to invest about $110 million (Rs 680 crore at current exchange rate) in the joint venture.
Trent didn’t respond to an email seeking comment on its plans. Sources with knowledge of the matter said the company intends to add another five hypermarkets in 2015 to the dozen outlets it already has, but the main focus is on opening smaller convenience stores.
The previous government allowed up to 51 per cent foreign holding in multi-brand retail in late 2012 and said states can make the decision on whether or not to allow such outlets in their territories. But with main opposition parties, including the BJP, opposing the move as well as lack of clarity on some rules and stiff sourcing requirements made companies like Wal-Mart Stores of the US to stay away from making any investments in the segment here.
Tesco is so far the only foreign retailer that has invested here, and there were concerns about the new government’s position towards the company after the BJP won the 2014 parliamentary elections and some ministers made comments against allowing FDI in multibrand retail. But since the Tesco investment had already been approved and going back on that decision could hurt India’s image as in investment destination abroad, industry experts say Trent is unlikely to face any action.
"The BJP wouldn’t want to upset the applecart severely. While they may not be in favour of FDI in multi-brand retail, they might not roll it back with retrospective effect," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "BJP’s attention to FDI is mainly for manufacturing with retail being a small enabler. Also, food and beverages retailing is a local business and even a single state is large enough if there are constraints in other states."
Since four of the 16 Star banner stores operated by Trent Hypermarket were in Gujarat and Tamil Nadu — which were ruled by the BJP and AIADMK which were against FDI in the segment — these stores were divested into a separate Tata subsidiary, Trent-Fiora Hypermarkets. The new stores that the Tata-Tesco JV plans to open will come up in Karnataka, which is a Congress-ruled state.
(Published in The Economic Times)