Earlier this month, Tesco took the initial steps to become the first foreign company to set up a chain of supermarkets in India’s £300 billion retail sector after announcing it had applied to buy a 50 per cent stake in Tata Group’s Trent Hypermarket.
The deal was widely expected to be cleared without much political opposition thanks to Tesco’s low-profile approach and its decision to expand at a slow pace, consultants said.
The Foreign Investment Promotion Board (FIPB) also approved a proposal by telecoms group Vodafone to take full ownership of its Indian business in a £60m deal. That proposal, however, needs final approval from the Indian cabinet.
Tesco’s decision to invest in India is seen as a vote of confidence in an economy that grew at its slowest pace in a decade in the past fiscal year and is struggling to attract foreign investors.
The venture also provides a boost for the Indian government after its decision to open up the supermarket sector in September 2012 received a muted response from overseas retailers who were put off by ambiguous foreign participation rules and political opposition. In October, the world’s biggest retailer, Wal-Mart, called off a joint venture with India’s Bharti Enterprises, citing unfriendly regulations.
Tesco has had a franchise agreement to provide support to Trent’s Star Bazaar chain since 2008, but is now expected to open three or four stores a year under a slow expansion plan designed to comply with sourcing regulations.
Tesco’s Indian investment follows declining third-quarter sales in all nine of its continuing overseas markets for the second consecutive quarter.
The world’s third-biggest retailer, which makes about two-thirds of its revenue in Britain, is in the midst of a £1bn turnaround plan put in place by chief executive Philip Clarke to try to reverse declining domestic sales.