IndiaRetailBiz

Prime Minister Manmohan Singh is ready to takeover the reigns of the country again. The second term of the Prime Minister, though will be with a difference. The difference comes from the fresh mandate received by him from the electorate to provide a stable and durable regime that will be free from the shackles of a motley crowd of small parties with no ideologies and the Left parties who have not been able move with the changing times.While, the development bodes well for business in general, it may also bring cheer to the retail sector currently reeling under the pressure of global financial meltdown. The global recession has severely curtailed capital flows affecting the health of capital markets and, therefore, availibility of funds for expansion. Cash crunch also led to non or near non-availibilty of consumer finance, increased rate of interest on housing, auto, and consumer finance resulting into slowing down of demand.The retail sector, which prior to current slowdown, was growing at a stupendous compounded annual rate of of 30 to 35 per cent is currently growing at an estimated 10 to 15 per cent. The growth, albeit at a much smaller pace, can mainly be attributed to opening of new stores by existing chains, since while generation of cash from on the one hand operations has almost halted, availibility of funds from other sources such as private equity, IPOs, issue of equity or loans from banks and other lenders have also dried up.The new government in a change of policy could now allow FDI in retail. This while bringing in capital from outside the country, would allow retail businesses to get much needed funds for expansion. Not only will this allow infusion of capital, it will also help bring in much needed competencies in terms of back-end processes and technologies from established retail players from aacross the world.While, all large retailers be it Birlas or Ambanis were confident of managing their retail supply chains on their own, over the period of time, have all realised that it is not an easy thing to do. They, and many other established players like Future group, are all looking for tie-ups in this area.In fact, many of them who until now were overtly or covertly opposed to infusing foreign capital in retail are themselves are looking for such capital. Some of the large retailer like Future group have even initiated measures to take advange of recently issued Press Notes No 2, 3 and 4 that circuitously allow infusion of foreign capital in restricted sectors like retail and media to infuse such capital in their projects, without attracting currenty prevailing restrictive provisions of policy guidelines on FDI in these sectors.Although, it was believed that the government would issue fresh rules that will effectively plug the loopholes on account of these Press Releases, it now appears that the government in the changedcircumstances may be willing to overtly allow FDI in these sectors.The current guidelines do not allow any FDI in front-end multi-brand retail, while up to 51 per cent of foreign equity is allowed in single brand retail. This has forced all global retailers like Wal-Mart, Carrefour, Teisco, and Metro to either enter into franchising/ licensing arrangements or waiting for guidelines to be liberalised in the coming months.There is a hope that sooner than later the government will go in for opening the retail sector to foreigners. This will not only bring in much needed capital but will deepen competence in highly complex retail business, which despite current slowdown, offers great growth potential in the coming years and which can even have beneficial impact on GDP growth as it will result in growth of consumption.