Increased limit unlikely to cheer foreign investors: Experts

The government is likely to raise the limit of foreign direct investment in single-brand retail trading to 74 per cent from 51 per cent at present, even as it has plans to raise the limit to 100 per cent in a phased manner.

The plan is to test the waters by initially raising the limit to 74 per cent and then depending on the response from all quarters, the cap would be lifted completely.

The Department of Industrial Policy and Promotion under the ministry of commerce and industry is planning to introduce the changes in the next round of revision of the FDI policy, which will come into effect from April 1, 2012.

This would be done after approval of the Cabinet, officials told Business Standard. 

According to experts, raising the FDI limit in single-brand retail trading to 74 per cent would not help investors. This is because foreign retailers face a lot of difficulties in finding an Indian partner willing to invest 49 per cent in the current scenario.

"Raising the FDI limit in the retail sector is always a positive signal.

"However, raising it to 100 per cent would truly be a game changer," said Krishan Malhotra, partner, KPMG.

If FDI in single-brand retail goes up, it will mean some development at last for the sector that has been waiting for foreign investment in the multi-brand segment for long, said Saloni Nangia, senior vice-president, Retail, Technopak Advisors.

Nangia said the move may not make much of a difference to the industry.

The government had permitted 51 per cent FDI in single-brand retail in 2006.

Since then, retailing through the franchisee route has been explored by several global brands leading to a rapid growth of exclusive brand outlets, according to a study by Deloitte.

"We are looking into the matter and steps will be taken appropriately. This is concerning raising the FDI cap for both single-brand and multi-brand

retail," minister of commerce and industry Anand Sharma said.

While the issue of allowing FDI in multi-brand retail has taken a back seat now, revision of FDI in single-brand retail is being looked at by the ministry of commerce and industry.

In the last policy revision, that came into effect from October 1, the government introduced an additional condition that FDI in single-brand retail can only be made by a foreign investor who owns the brand.

As for now, increasing FDI in single brand could be seen as a signal for better things to come, that is, foreign investment in multi-brand retail, said an analyst, requesting anonymity.

Nangia added that there are some foreign brands that are not keen to invest in India as they are wary of joining hands with a partner.

A case in point is Scandinavian home products giant -- IKEA -- that had put on hold its India plans some two years ago because of the FDI restrictions.

IKEA had told its stakeholders that Indian investment rules did not encourage it to go ahead with its investment plans in the near future.

The foreign brands in the process of expansion in India include Paul & Shark, Zegna, Diesel, Zara, among others. Italian fashion brand, Naracamacie, is keen to enter the Indian retail market too, and has sought permission.

Currently, there are an estimated 200 foreign brands in India.

The total turnover in single-brand retailing, including Indian and foreign labels, is pegged at $3 billion to $4 billion in the country.

FDI inflows between April 2000 and January 2011, in single-brand retail trading stood at $ 128.34 million, according to DIPP data.

Total retail sales in India is expected to grow from $395.96 billion in 2011 to $785.12 billion by 2015, according to the Business Monitor International, India Retail Report for the second-quarter of 2011.