India eased requirements for foreign retailers to invest in local supermarkets to lure global chains such as Wal-Mart Stores Inc. (WMT:US) and Tesco Plc (TSCO) to open stores in Asia’s third-biggest economy.
Rules covering sourcing, infrastructure investment and store location have been amended, Commerce Minister Anand Sharma told reporters in New Delhi last night. The cabinet also approved proposals to amend foreign direct investment rules for a range of businesses including commodity exchanges, he said.
The government is loosening rules to attract overseas investors to stem a ballooning current-account deficit and a weakening rupee. While the nation changed laws in September to allow foreign retailers to own majority stakes in stores selling multiple brands, no companies have sought such licenses yet.
“The government is showing really positive intentions,” Kumar Rajagopalan, chief executive officer of lobby group Retailers Association of India, said in an interview on Bloomberg TV India. “The state governments now have to go forward and invite the companies to come and invest.”
Wal-Mart, the world’s largest retailer, and other foreign chains already have some wholesale operations in the country. Bentonville, Arkansas-based Wal-Mart is studying India’s revisions and remains “optimistic” about the opportunity, Arti Singh, a spokeswoman for Wal-Mart’s Indian unit, said in an e-mailed statement. A Tesco spokesman said the company welcomed the proposed changes in the policy and is in the process of reviewing the conditions.
Debt-heavy domestic retailers like Future Retail Ltd. (FRL) could be one of the “key beneficiaries” of these policies, as it would make it easier for them to seek overseas partners to trim their borrowings, said Dhvani Modi, an analyst at brokerage ICICI Direct.
Future, which runs the Big Bazaar grocery chain, climbed as much as 14.7 percent to 84.5 rupees, headed for the biggest gain since April 17. Apparel retailer Shoppers Stop advanced as much as 4 percent before dropping 1.35 percent to 355.15 rupees as of 3.08 p.m.
A panel of Indian ministers also approved changes to the definition of “control” of a company under the FDI rules to help close mergers and acquisition deals faster. Taking control of an Indian company will now mean the right to appoint a majority of directors or to control the management or policy decisions, the government said after the Cabinet Committee on Economic Affairs approved the new definition.
Minister Sharma said foreign investment up to 49 percent will be now allowed under the automatic route in sectors including petroleum and natural gas, commodity and power exchanges as well as in stock exchanges. In defense, the government will consider proposals of more than 26 percent FDI on a “case to case” basis.
The government also amended a rule intended to help small industries supply to the big chains. Retailers were earlier required to source 30 percent of their manufactured products from small- and mid-sized local firms, which were defined as companies with less than $1 million invested in factories and machinery.
The new rules allow sourcing from companies with investments of up to $2 million, broadening the supply base for retailers. Products from agricultural cooperatives and farmers groups would also be considered under this requirement, according to an e-mailed statement from the government.
Allowing farmers groups in this category “is a huge deal as it includes all dairy products and fresh produce,” Modi said. “This will make it very easy for retailers to meet the requirement.”
The new rules could also offer more flexibility on capital investment. Companies will need to spend a minimum of $50 million on facilities such as warehouses, distribution networks and refrigerated storage centers, according to Sharma.
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