FDI in retail reforms stuck: Indian retailers face cash crunch & slowing growth.

MUMBAI: India's largest supermarket operator, Future Group, is having a clearance sale: its financial service business and flagship clothing brand are gone, and more deals are in the pipeline.

Six months after the government backtracked on plans to allow foreign retail giants such as Wal-Mart Stores and Carrefour to form joint ventures, cash-starved domestic chains are selling assets, shutting stores, and scaling back expansion plans.

It seems improbable that retailers could be in such trouble in India. They have the world's second-largest population, increasingly affluent consumers, and limited competition.

But things are tough for supermarkets, a relatively new business sector in India, with every major chain losing money. The economy has lost momentum, compounding problems of high food inflation and low retail prices, and expensive real estate.

Foreign partners would bring experience, expertise and funds, but many in the industry do not expect a decision on foreign investment in supermarkets before elections in 2014.

"These companies have realised there is no point standing still and bleeding more, waiting for the government to act," said Debashish Mukherjee, partner and vice-president with consultancy AT Kearney.

ALTERNATIVE FUNDING

With foreign investment ruled out, many supermarkets, which account for 70 per cent of organised retail in India, are looking to private equity investors or hitting up their billionaire owners for more capital as they continue to bleed.

"Foreign private equity firms are in talks with smaller businesses which are less capital intensive. So this option is ruled out for the big boys," said an investment banker who did not wish to be identified.

Last November, after years of delay, the prospect of a foreign partner appeared tantalisingly close for the domestic chains. The government said foreign supermarket operators would be able to own up to 51 per cent of a joint venture.

Source : economictimes.indiatimes.com