 | « Back to article | Print this article |
Even as foreign investment in multi-brand retail is banned, the government is considering a proposal to scale up foreign direct investment in single-brand retail to 100 per cent, as well as allow 51 per cent FDI in multi-brand retail of electronics goods, computers, sports goods as well as watches.
In effect, the government proposes to relax the norms with regard to foreign participation in multi-brand retail by opening up these specialised sectors, while keeping grocery and consumer goods retail out of bounds.
The move comes months after the Left parties, which were opposed to any relaxation of FDI norms for the retail sector, pulled out of the United Progressive Alliance government.
Originally, the proposal was mooted in January 2007, but later abandoned in the face of the opposition. Over a fortnight ago, a senior government official had told Business Standard that the proposal had been revised.
The earlier proposal was to allow 51 per cent FDI in multi-brand speciality retail, while the proposal to allow 100 per cent in single-brand retail is new.
If approved, the move will facilitate the entry of more single-brand retail players like IKEA as well as top notch electronics and sports goods retailers like the UK-based Curry's and Sports Direct International into India, say analysts.
A recent survey done by the United Nations Conference on Trade and Development on 300 international retailers found that more than a quarter of them have either opened or are planning to open their stores in India if the country relaxes the norms further.
The DIPP has seen this relaxation of FDI norms as an opportunity to boost the domestic industry by linking the new norms to domestic sourcing.
Sources said if a foreign investor from the single-brand retail space decides to have FDI above 51 per cent, it will have to source 50 per cent of the projected sales from the country. In case the investor is not able to fulfil this condition within the stipulated five-year period, it will have to divest his equity to 51 per cent.
FDI In Retail Proposals
Moreover, for FDI up to 51 per cent in the single-brand retail space, the products will have to be sold under the same brand name internationally and will have to be branded during the manufacturing process.
The government had opened FDI in single brand retail trading up to 51 per cent in February 2006, and has approved 33 proposals which mainly involved luxury brands like Cartier and Armani.
Another study by economic think-tank Indian Council for Research on International Economic Relations had claimed unorganised retailers in the vicinity of malls and hypermarts experienced a decline in sales and profit in the initial years of the entry of organised retailers.
The study added that this adverse impact weakens over time.
The study also added that the retail sector is expected to grow to $590 billion (Rs 27,376 crore) in 2011-12, by rising 83.22 per cent from $322 billion (Rs 14,940 crore) in 2006-07. Within this period, organised retail is likely to grow 45-50 per cent per annum and quadruple its share in the overall retail trade to 16 per cent by 2011-12.
