India's foreign investment regulator on Monday approved two key foreign direct investment, or FDI, proposals from two British majors -- Tesco and Vodafone -- in a move that could renew investor confidence in an economy that has held out great promise while failing to deliver, in recent years.
Tesco's (LON:TSCO) long-awaited entry into the country's retail sector is valued at $110 million, while telecom giant Vodafone (NASDAQ:VOD) is expected to increase its stake in its Indian arm to 100 percent for $1.6 billion. The investments are seen as sign of a return of confidence in Asia’s third-largest economy, after the country's financial markets suffered fund outflows earlier in the year, when investors pulled their money out in droves, fearing India’s widening current account deficit, a steep depreciation in the rupee and a lack of reforms.
The Foreign Investment Promotion Board, or FIPB, approved Tesco’s plan to set up a chain of supermarkets in India, in a 50:50 joint partnership with Tata Group's Trent Hypermarket, making it the first foreign company to enter the country’s $500 billion retail sector, after the nation allowed foreign investments in multi-brand retail last year. In November, the company announced that it had applied for regulatory clearance for buying a 50 percent stake in Trent Hypermarket.
Unlike Wal-Mart (NYSE:WMT), its rival from the U.S., Cheshunt-based Tesco’s entry to the massive Indian retail market was less controversial as the company maintained a low profile and announced a relatively less aggressive expansion plan. Wal-Mart had announced an ambitious plan to open up a chain of stores across the nation in partnership with Bharati Enterprises, immediately after the government opened up India’s multi-brand retail market in September 2012, but eventually called off the joint venture in October, citing regulatory hurdles and ambiguous policies.
The FIPB on Monday also approved Vodafone’s proposal, which is seeking to fully acquire its Indian arm, Vodafone India, by increasing its stake to 100 percent from the current 64.8 percent. However, the firm will need a final nod from the Cabinet Committee on Economic Affairs before the $1.6 billion transaction can be completed.
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The latest development involving Tesco and Vodafone are also expected to help India's Congress-led UPA government in the upcoming nationwide elections. The alliance has struggled to attract foreign investors and implement policy reforms amid a hostile political environment and a slump inthe economy, which grew at its slowest pace in a decade this year.
Tesco’s foray into the Indian market is expected to encourage other foreign retail giants to enter the Indian market and, according to local media reports, France-based Carrefour, the second-largest retailer in the world, is also moving ahead with its plans to set up retail stores in India, and is scouting for local partners by engaging in talks with Indian retail majors such as the Future Group and Hypercity.