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 The BJP is considered to be more investor-friendly than India's
ruling Congress party but opposes foreign direct investment in
supermarkets because of its impact on small shopkeepers. It unseated
Congress in Rajasthan's state elections in December.
The Associated Chambers of Commerce and Industry of India criticized
Rajasthan's policy reversal, made on Friday, saying it would "dent
and shake" global investor confidence.
"If one party reverses the decision of its rival dispensation upon
change of guards, the policy and political risks for global
investors would definitely increase in India, scaring them away," D.
S. Rawat, secretary general of ASSOCHAM, said in a statement.
In late 2012, the government of Prime Minister Manmohan Singh opened
India's $500 billion retail industry to foreign operators, allowing
companies such as Wal-Mart Stores Inc <WMT.N> and Tesco Plc <TSCO.L>
to own majority stakes in Indian chains for the first time.
However, India left it up to individual states to decide whether or
not to allow foreign retailers.
So far, fewer than half of India's 28 states have adopted the
policy, making it harder for retailers to exploit economies of scale
by setting up sourcing and cold storage networks that could serve
stores in contiguous states.
Stringent local sourcing rules and worries that the policy might be
overturned have also kept most global supermarket chains on the
sidelines.
Polls show the BJP is on track to win the most seats nationally in
elections due by May. However, no party is expected to win the 272
seats needed for an outright majority, meaning the biggest party
will seek to form a coalition with regional parties.
"This is all political posturing ahead of the national elections. No
government can come in and ignore foreign investors," said Harminder
Sahani, managing director at Wazir Advisors, a retail consultancy.
"The most likely outcome is the BJP will scrap the existing policy
and come up with a new one with additional conditions but they will
come up with something," Sahani said.
TESCO IS LONE INVESTOR
Tesco, the world's third-largest retailer, in December unveiled a
relatively modest plan to invest $110 million in Tata Group's Trent
Hypermarket Ltd <TREN.NS> to open stores in the states of
Maharashtra and Karnataka.
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Maharashtra is home to the Indian financial capital, Mumbai, and is
led by a Congress party alliance. Neighbouring Karnataka, where the
technology hub of Bangalore is located, is run by a Congress
government.
"We have noted the decision of the state government and will bear it
in mind as we consider our future plans," a Tesco spokesperson told
Reuters.
In October, Wal-Mart, the world's biggest retailer, walked away from
its partnership with India's Bharti Enterprises to set up retail
stores, citing unfriendly regulations. Wal-Mart still runs wholesale
outlets in India.
Last month, the newly-elected Aam Aadmi (Common Man) Party
government in New Delhi barred foreign supermarkets in the capital.
The Indian economy grew 4.5 percent in the last fiscal year, or less
than half its rate in the years before the global financial crisis,
and sluggish investment due in part to inconsistent policies has
contributed to the slowdown.
"From any investor's perspective — foreign or domestic — he is
looking at how predictable the environment is in the future," said
Devangshu Dutta, chief executive officer of Third Eyesight, a retail
consultancy.
"The policy framework and the overall environment are not
encouraging the foreign investor to take that call," he said.
(Additional reporting by Aditi Shah,
Nandita Bose and Prashant Mehra; editing by Kim Coghill)
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