Government’s Take on Foreign Direct Investments Curbs Retail Growth

• Wednesday, January 13th, 2010

Government policy on not permitting foreign direct investments in the retail sector has hampered its growth. Retailing accounts for 10 percent of the country’s GDP and provides employment for 8 percent of the country’s workforce. Debt financing is a difficult task due to unfavorable equity support prevalent in the sector. During the National Retail Summit 2010 many speakers discussed on the difficulties of procuring loans for expansion and the need for private equity.

Pankaj Jaju, executive director, Enam Securities, said, “The sector needs around Rs 50,000 crore equity but has seen investments of only Rs 4,000 crore.” He further said Rs.2, 000 crore has been raised through capital markets by fashion and lifestyle stores such as Shopper’s Stop Ltd and Kishore Biyani-led Pantaloon Retail etc and another Rs.2,000 crore by private group houses like the Reliance Group, the Birlas and the Tata Group. As retailing is the largest sector next to agriculture, private equity will facilitate the growth at a faster pace. Asim Dalal, managing director, The Bombay Store, remarked that banks require property as collateral for taking loan which is difficult as retailers either lease or rent the property. Previously, banks did not support telecom sector, but sensing the growth potential of that sector, banks have taken a positive approach. One can only hope that the policies will change over a period of time.

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