India clears Vodafone, Tesco investments

December 31, 2013 - 10:04:18 am

A retail shop owner speaks on his mobile phone outside his closed shop shutters painted with an advertisement for Vodafone at a market in the southern Indian city of Chennai yesterday. India’s foreign investment regulator cleared a decision on Vodafone Group Plc’s $1.6bn plan to take full ownership of its local unit, Economic Affairs Secretary Arvind Mayaram said.

NEW DELHI: An Indian panel yesterday cleared investment plans by British giants Tesco and Vodafone worth over $1.5bn, as foreign firms show new interest in the country since New Delhi eased barriers to foreign capital.

The Foreign Investment Promotion Board (FIPB) sanctioned a proposal by the world’s biggest mobile phone company Vodafone to buy its joint venture partners’ stakes in its Indian arm for Rs101bn ($1.6bn).

Tesco, the world’s third-largest retailer, had applied to the board for permission to invest an initial $110m in the Tata conglomerate’s retail business Trent Hypermarket. 

“The board gave permission to Tesco and to Vodafone. Now the applications must go to the Cabinet Committee on Economic Affairs,” a senior foreign investment panel official said.

The move by Vodafone to buy out its partners comes after India opened the telecom sector to 100 percent foreign ownership five months ago and comes despite a bitter tax row with the Indian government over its Indian investment that is under conciliation.

Before that, foreign ownership in phone firms was capped at 74 percent. New Delhi moved last August to open up its large and potentially lucrative retail sector to foreign companies to try to boost the slowing economy. 

“We are pleased to have obtained FIPB approval to increase our stake in Vodafone India,” Ben Padovan, spokesman for the British group, said.

The two British firms are seeking to tap growing affluence in the emerging market giant and offset saturated domestic and other developed markets.

Indian consumers are expected to spend ever increasing amount on goods from food, communication services to cars even though the economy has slowed sharply.

Analysts say Tesco’s entry could prompt other foreign retailers to take a plunge in the Indian retail market, expected to be worth nearly $1 trillion annually in sales by 2023, according to industry estimates. 

Tesco already supplies about 80 percent of the goods in Tata’s 16 Star Bazaar and Star Daily stores in southern and western India after signing an agreement in 2008. 

Until India relaxed retail ownership laws last year, foreign multi-brand retailers had been unable to sell directly to consumers. If Tesco’s proposal is successful, the British firm and Tata will have 50-50 ownership of Trent, the retail unit of tea-to-steel group.

Trent said earlier this month “its understanding of the Indian market” coupled “with Tesco’s unparallelled global retail expertise will allow us to leverage the tremendous potential of the market”.

Tesco has leapfrogged Walmart in entering the retail sector in India. The US retailer put plans to open up supermarkets in the country on hold after winding up a wholesale partnership with the retail arm of India’s biggest phone company Bharti Airtel.

The world’s biggest retailer is expected to stay focused on its wholesale business, which would help to build up its supply chain to support any future store venture in India, analysts say.

AFP

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