As Walmart and Bharti bring their six year wholesale partnership to an end, ending the likelihood of a retail tie-up, Tesco have also asked for clarity over the opaqueness in Indian retail foreign direct investment (FDI) rules.

As Walmart and Bharti bring their six year wholesale partnership to an end, ending the likelihood of a retail tie-up, Tesco have also asked for clarity over the opaqueness in Indian retail foreign direct investment (FDI) rules.

The decision comes as little surprise given the ongoing difficulties Walmart is having in India, but still represents a significant development in the saga surrounding retail investment there.

Tesco has compounded the impact of WalMart’s announcement by raising further questions surrounding the impenetrability of multibrand FDI laws. Although WalMart, is putting Indian investment plans on hold while it revisits strategy and resolves some ongoing investigations, it is still seeking clarification from the government on FDI rules.

Tesco also hopes to engage with the government. Meanwhile its decision to join up with China Resources in the Chinese market indicates a shift towards using local partners rather than going it alone. This could be significant: WalMart’s investment plans in India could be set back years by ending the Bharti venture, offering the likes of Tesco and Carrefour the chance to jump to the front of the queue there with partners of their own.

India, however, is proving a tough market to crack. Despite an easing of the norms in August, regulation over sourcing and investment continues to put foreign retail at a disadvantage to local players. As a result a stand-off has developed between big retail and Indian authorities with no multibrand retailers willing to make an application for investment until the situation is resolved.

The announcements from WalMart and Tesco mean that the Indian government also has some tough decisions to take. Reiterations that the government would not be making further adjustments after the August revision seem hollow given that no multibrand retailer has come forward to invest. This is in stark contrast to the easing of restrictions for single brand retail investment, which has attracted a number of international suitors.

Even more crucially, India’s elections are due to take place next year, with some opposition parties threatening to reverse FDI legislation if they gain power. Given that FDI requires a minimum investment of US$100m foreign retailers will now stay away until the elections, and the legislation itself, are settled once and for all. This could take years, but given the potential for growth in the Indian retail market it seems that retailers will be willing to wait. India remains regarded as a key future market, especially as the Chinese market matures with Indian retail sales expected to double in US$ terms between 2012 and 2017, passing the US$1trn mark in the process.

Jon Copestake retail analyst The Economist Intelligence Unit