Wal-Mart, Others Wary of India’s Multibrand Retail Sector as Political Support Wanes

June 27, 2013, 9:24 a.m. ET

Wal-Mart, Others Wary of India’s Multibrand Retail Sector as Political Support Wanes

Overhaul of Retail Sector Divides Parties

RAJESH ROY

Global retailers hoping to invest in India’s recently opened retail sector are holding back as political support for foreign tie-ups appears to be crumbling.

“Some prospective investors have…generally conveyed that they will have to address apprehensions of their boards” while planning their investments, according to a document prepared by India’s Department of Industrial Policy and Promotion during Trade Minister Anand Sharma’s visit to London recently.In September, India for the first time opened up the multibrand retail sector to foreign companies, permitting them to own up to 51% in local ventures. The government has positioned the policy change as a landmark economic overhaul that has the potential to bring in much-needed foreign capital, help tame food-price inflation and modernize the country’s logistics industries.

But critics in opposition parties have attacked the policy, arguing that foreign supermarkets will take business away from 12 million traditional retail vendors. Many states ruled by the principal opposition Bharatiya Janata Party opposed the government’s decision, led by the United Progressive Alliance, and have refused to implement the policy. The opposition party has even threatened it would reverse the current government’s decision if it were to come to power in national polls scheduled to be held latest by May 2014.

The lack of political unanimity and worries that states could thwart investment plans have made foreign investors move cautiously. So far, not a single foreign investor has submitted proposals for investments in the sector.

Wal-Mart Stores Inc. WMT +0.92% is one of the many global giants looking to enter the country’s multibrand retail segment, and said in late 2012 that it plans to open its first stores in two years. To date, it hasn’t filed any investment proposal with the Indian government.

“We encourage the government of India to continue to work with foreign retailers to clarify and refine the conditions in a way that provides certainty and ensures an attractive investment environment,” a Wal-Mart spokeswoman said Thursday.

Wal-Mart is facing an investigation over allegations that it violated Indian rules by investing in a domestic retail chain in 2010, before the government allowed foreign investment in the multibrand retail segment.

Other companies such as Tesco TSCO.LN +1.83% PLC have also said they are keen to enter the sector, but haven’t yet finalized plans, seeking more clarifications.

On Thursday, BJP senior vice-president Mukhtar Abbas Naqvi said the party will chalk out its strategy on the multibrand retail policy when it begins preparations for the elections.

So far, only 12 of India’s 28 states have supported the policy. Most of these states are ruled by the Congress party, which heads the ruling alliance.

Last year, the Trinamool Congress, which was part of the UPA, left the coalition government protesting the September decision. Some other parties such as the Samajwadi Party and the Bahujan Samaj Party, which aren’t part of the UPA government, but have previously supported it on other issues, have also opposed the decision.