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India Said to Consider Easing Rules to Lure Retailers

India Said to Consider Easing Rules Luring Wal-Mart to Tesco
Shoppers browse in the fruit and vegetable section of a Bharti Walmart Pvt. Ltd. Best Price Modern Wholesale store in Zirakpur, on the outskirts of Chandigarh, Punjab. Photographer: Sanjit Das/Bloomberg

India’s cabinet will today consider easing some requirements for foreign retailers investing in local supermarkets, according to two government officials familiar with the matter.

The cabinet will consider amendments on rules covering sourcing, infrastructure investment and store locations, according to the two officials, who asked not to be named as they aren’t authorized to speak to the media.

The government is loosening rules to attract global chains such as Wal-Mart Stores Inc. and Tesco Plc to its supermarket industry. While the nation changed laws in September to allow foreign retailers to own majority stakes in stores selling multiple brands, no overseas companies have sought such licenses as yet.

The proposed amendments help clarify the main issues that have held back foreign retailers from starting operations, Dhvani Modi, Mumbai-based analyst at brokerage ICICI Direct, said in a phone interview.

The cabinet approving these amendments “would be a big step,” she said. “You should see some positive response from the foreign retailers”

Domestic Retailers

Any softening of the government’s policies could also help debt-heavy domestic retailers, who have been seeking overseas partners to trim their borrowings, according to Modi.

Fashion retailer Shoppers Stop Ltd. climbed as much as 6.9 percent to 375 rupees, headed for the highest level since July 16, before trading at 353 rupees as of 11:30 a.m. today. Future Retail Ltd. rose as much as 3.43 percent.

The Indian government currently has restrictions on store locations and requires foreign retailers to source some products from small businesses. Under the new proposals, foreign-funded outlets could be opened in any city as long as the state government approved them, according to the two officials.

Overseas retailers are currently restricted to cities with a population of more than one million people. Not all Indian states allow foreign investment in retail.

Capital Investment

The cabinet amendments could also help international retailers choose from a wider set of suppliers. Under the proposals being studied, retailers will have to buy 30 percent of manufactured products from small- and mid-sized local firms with less than $2 million invested in factories and machinery, the officials said. Current rules are stricter, defining “small and medium” companies as those with investments of under $1 million.

The new rules could also offer more flexibility on capital investment. Companies will need to spend a minimum $50 million on facilities such as warehouses, distribution networks and refrigerated storage centers, according to the two officials. That clarifies existing rules, which required half of all investments in the first three years to be for such infrastructure.

Wal-Mart and other foreign chains already have some wholesale operations in the country. Arti Singh, a spokeswoman for Wal-Mart’s Indian unit declined to comment on the cabinet discussions. “We are still very early in the process on FDI but are excited by the opportunity in front of us,” the company said in a statement on July 23.

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