Earlier this year, while India was under one of the world's strictest Covid-19 lockdowns, Asia’s richest man, Mukesh Ambani, raised more than $20bn for his telecom and tech business from a string of marquee investors. Now he is trying to repeat that feat for his retail venture. In both cases he was supported by either existing regulations or the fear of upcoming ones.

Within three months, starting in April with a $5.7bn investment from social media giant Facebook for a 10% stake, Ambani’s Reliance Industries sold 33% in its telecom and tech business Jio Platforms — worth $20.2bn — to a slew of financial and strategic investors including Google, Silver Lake Partners and Intel Capital, as well as several sovereign wealth funds from the Middle East.


With 388 million users, Jio is India’s largest telecom services company. It has achieved this accolade in less than four years by offering its service for free back in 2016. In doing so, it decimated a once crowded field of at least 10 telecom companies down to two: Bharti Airtel, which is owned by fellow billionaire Sunil Mittal, and Vodafone Idea (recently rebranded as Vi), which is struggling under a mountain of debt with uncertain chances of survival.

Monopolies cause problems

The lack of competition, while a bonanza for the winner, is where the potential for trouble lies, warns Rajiv Sharma, head of research at brokerage SBICAP Securities. There is the obvious potential for companies to increase prices, but there is another, more troubling possibility, says Mr Sharma. With only a few companies bidding for the spectrum, the government’s coffers are bound to feel empty. To fill that gap, and to fund future investments in the spectrum, the telecom regulator may just turn to the streaming services, the so-called OTT players that ride on the pipe laid by the telcos, to fund that expense, says Mr Sharma. 

In other words, he says, it is possible that the regulators may change their stance on net neutrality — the principle that internet service providers treat all content equally and do not discriminate in any way by charging and providing faster access for one over another. Such an eventuality is not entirely unheard of, says Mr Sharma, citing the Trump administration's roll-back of net neutrality rules in 2018 — a court later ruled that the government could not block state or local level enforcement of net neutrality rules.

As such, an investment in the country’s largest service provider offers “a regulatory hedge”, especially for tech investors, says Mr Sharma, who, “by being stakeholders, get some bargaining power” to try and influence any changes that may take place.

Jio is not the only Reliance unit to get investor love in the last few weeks. Since September, several US private equities, including Silver Lake Partners, KKR, General Atlantic and TPG, as well as sovereign wealth funds of the likes of Abu Dhabi’s Mubadala and ADIA and Singapore’s GIC, have poured more than $5bn for an 8.5% stake into Reliance Retail Ventures, the retail subsidiary of the behemoth, valuing the business at about $58bn. Amazon is reportedly in talks for a $20bn stake.

Retail restrictions

The game for retail is more clearly restricted. 

Reliance Retail, which was started in 2007, netted $726m on revenue of $21.7bn for the financial year ending in March, and is the largest of its kind in the country with about 12,000 stores. It has stores in every format, including, small, large and wholesale, and sells a range of products from fresh food and groceries to fashion and electronics, among others. In May, Reliance launched JioMart, an online grocery service meant to compete with the likes of Amazon and Walmart-owned Flipkart. The broad idea is also that Reliance’s tech and telecom unit will provide the technology underpinning the online retail business.

India’s retail market is estimated to be $825bn in sales (at pre-Covid-19 levels), of which 12% (or barely $100bn) comes from the so-called organised sector, which includes e-commerce companies as well as the neighbourhood stores that throng the country, according to retail consultancy Technopak. The potential opportunity for anyone willing to dip their toes in it seems huge, but is littered with no-go zones that  make it harder for any newcomer, let alone a foreign one.

Technopak chairman Arvind Singhal calls India’s FDI policy for retail “very, very regressive”. By putting in place all the restrictions that the government has, “politicians may think they are doing the country a favour, but it’s like extracting one tooth at a time. Most countries go out to woo investors. Our country says 'come, we’ll allow you to invest, and then I’m going to sit in my moat and open a small little door for you and then you are at my whims and fancies'. Nobody [else] does this.”

For instance, in e-commerce, foreign players are prohibited from owning inventory, they cannot give private labels any preference on their platforms and nor can they offer for sale more than 25% products from a single vendor. There are no such restrictions for domestic e-commerce firms.

Similarly, the landscape for physical retail is a myriad minefield of restrictions for foreign players whose holding in retail stores that sell a range of products — what in India is known as multi-brand — is restricted to 51%. That apart, they can only operate in cities with a population of one million or more, have to source at least 30% of their products from small- and medium-sized businesses and have to invest at least $100m in back-end infrastructure. They also need permission from each state they want to operate in. 

Kinjal Shah, vice president at ratings agency ICRA, says because of the country’s restrictive policies, a delay in opening the sector to foreign investors and lack of policy stability, FDI in retail has been “very, very minuscule”. India, she adds, “needs both financial investments [like the ones coming into Reliance Retail right now], but also strategic ones”, as it is the latter which helps build out a sector with its in-depth knowledge. 

And while the money flowing into Reliance Retail right now may or may not help in building out the sector, the fact is that “India needs more than one retailer of the size of Reliance Retail”, points out Technopak’s Singhal. “But the government policies are so restrictive, that they’re not giving anyone else a chance to grow.” 

This article first appeared in the October - November print edition of fDi Intelligence. View a digital edition of the magazine here