Foreign Direct Investment (FDI) regulations in multichannel retail approved in 2012 have now become a weapon for trading political blows in India’s general election campaign.

The way politicians are leaning suggests the Indian market is closing its doors to foreign retailers. But they could well change their minds once the dust has cleared after polling, especially if economic growth continues to drag.

One of a host of conditions the government anchored in the FDI rules was that any final decision on how rules were implemented was devolved to state level. It essentially meant that should there be a newly elected government of any Indian state in the future, it could simply withdraw official consent to FDI in retail, meaning any potential investor faced enormously high investment risk.

This happened last week when the New Delhi state government was elected. Delhi’s resistance to FDI means that, for the time being, only 10 of India’s 28 states still back the policy. However, as the government of Rajasthan has recently gone from pro-FDI Congress to the anti-FDI Bharatiya Janata Party, Rajasthan could be the next state to turn against FDI.

Global players operating in India have all shown varying degrees of interest in multi-format retailing, but their investment plans remain low-key. Tesco’s $110m (£66m) investment plan in Tata Group’s Trent Hypermarket division does not suggest any rapid expansion.

Carrefour is reported to be once again in negotiations over possible capital investment into Future Group, although it could be that this story has been floated more to appease shareholders.

Walmart, which has hit local opposition because of a high-profile bribery investigation, ended its partnership with Bharti Retail in 2013, froze its expansion of cash and carry stores, and laid off more than 100 of its Indian staff. However, it registered a new company called Walmart India.

Auchan employed a different strategy from its peers, opening 13 to 15 hypermarkets annually, based on a franchising model designed to bypass regional legislation. However, its expansion was not approved by the Indian Department of Industrial Policy & Promotion on the basis that using the same back-end infrastructure for FDI and non-FDI franchised stores was an unfair advantage.

With any opening up to foreign players happening slowly, most probably state by state, no radical changes in the development of India’s retail market are expected.

Milos Ryba is research director emerging markets; Rohan Hingorani is associate analyst, Planet Retail.

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