Tesco’s Indian expansion plans were dealt a blow yesterday when it emerged that the next government could ban foreigners from its grocery market.
The Bharatiya Janata Party (BJP), which is the front-runner to form India’s government after the current elections, detailed plans in its manifesto yesterday to block overseas supermarkets.
It comes just a month after Tesco sealed a joint venture with a subsidiary of India’s Tata Group, Trent Hypermarket. The deal will see Tesco invest about £85m in the 50-50 partnership to initially open 12 stores in southern and western India. Trent runs the country’s Star Bazaar chain. The BJP’s plans could scupper the joint venture.
Clive Black, a grocery expert at Shore Capital, said: “India has been and will remain a tough nut for Western retailers to crack.”
Shares in Tesco fell 1.4 per cent to 283.3p yesterday.
A number of other international grocers, including France’s Carrefour and Wal-Mart of the US, have harboured plans to enter the region. But Mr Black warned that most of the grocery chains’ ambitions for the country were broadly small scale compared to other emerging markets such as China.
He added: “Any such policy measure by the Indian government would not be ideal for Western multi-brand retail chains aspiring to expand in the subcontinent. [But]… such retailers only have the most modest investment propositions in the market.”
A Tesco spokesman said: “We note the comments from the BJP. We have no further comment at this stage.”
India’s retail sector is valued at £330bn and a ruling in September 2012 allowed foreign retailers to invest in the market. But its federal government allowed individual states to enact their own legislation, and some have held back from ratifying the changes due to local pressure from businesses.
The regulatory uncertainty over the past 18 months has put off many chains and the BJP manifesto further confuses the situation for retailers. At the moment, the government lets overseas companies to buy up to a 51 per cent stake in multi-brand retailers in India.
Marks & Spencer is planning to open up to 100 new shops in India by 2016. It has a joint venture with Reliance Retail but will not be affected by the BJP plans as it does not plan to sell food there.