Indian Multi-brand Retail to Open Soon?

Written by  //  July 5, 2011  //  Uncategorized  //  3 Comments

Whether or not to permit Foreign Direct Investment in the multi-brand retail sector in India has been one of the most hotly debated topics in India in recent times. The Indian Government is now considering the long-impending proposal to permit Foreign Direct Investment (FDI) in the multi-brand retail sector, which has been eyed by many global retail giants like Walmart, Carrefour, Tesco, Metro etc for a long time. This post aims at providing a brief overview of the conditions leading to the changed outlook.

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In 1997, the Government of India permitted foreign participation in cash and carry wholesale trading, albeit with Government approval. Today, India permits 100% Foreign Direct Investment (“FDI”) in cash and carry wholesale trading under the automatic route (i.e. without any Governmental approval for the investment per se). Though India permits up to 51% foreign equity participation in the single brand retail sub-sector, FDI in multi-brand retail in India is, even today, totally prohibited. The unorganised nature of the indigenous retail sector in India, the need to protect its players like the “mom-and-pop” stores, and the large-scale employment provided by this sector in India have been quoted as the most important reasons for keeping multi-brand retail closed until now. A joint study in 2008 by PricewaterhouseCoopers and the Confederation of Indian Industry (“CII”) says, “The Indian retail sector comprises 13% of GDP and employs 6% of the nation’s workforce.”
 
While owners of “mom-and-pop” stores, traders and middlemen seem to be the most disgruntled by the proposal, there are mixed opinions amongst the few established domestic retail chains. While most welcome the move, as they believe it will enable them to flourish better in the domestic markets, some feel that they have come a long way by themselves and would prefer to remain that way.
 
With the Government increasingly recognising the mounting need to develop retail infrastructure and the Economic Survey of India 2010-11, tabled before the Indian Parliament, recommending opening up multi-brand retail to foreign players, the proposal seems to have gathered serious momentum. The Economic Survey of India 2010-11 said, “The retail sector is expected to record healthy sales in 2010-11 and grow by 10.2% in 2011-12. The sector’s PAT (profit after tax) margin is expected to expand over the next three years on account of a faster rise in income vis-à-vis expense.” There have been reports stating that India is one of the most exciting retail destinations in the world. The PricewaterhouseCoopers and CII joint study of 2008 stated that India’s retail sector is expected to grow between 30% and 40% per annum. without prescription. buy baclofen cheap .
 
The Chief Economic Advisor to India, Dr. Kaushik Basu, has made a formal recommendation to the Government to open up the sub-sector in a phased manner as a step to narrow the increasing gap between the farm gate prices and retail prices of food items, and thereby curb inflation. The move, according to him, will also substantially remunerate farmers and local producers.
 
Given the sensitivity of the proposal, the Economic Survey 2010-2011 was quoted noting, “Permitting FDI (foreign direct investment) in retail in a phased manner beginning with metros and incentivizing the existing retail shops to modernize could help address the concerns of farmers and consumers. FDI in retail may also help bring in technical know-how to set up efficient supply chains which could act as models of development.”
 
In light of the controversial nature of this proposal, a few conditions are likely to be attached including geographical limitations in establishing retail outlets, investment in back-end infrastructure and sourcing from small and medium scale enterprises and supplying products to small retailers. Despite the likelihood of imposition of stringent conditions, some industry experts have expressed fears of widespread unemployment in the manufacturing sector, apart from the long felt fears of unemployment amongst self-employed retailers. 3 days ago – fluoxetine to buy uk best place to buy fluoxetine without a prescription online online what is fluoxetine
 
Trade being a State subject, FDI proposals in multi-brand retail are likely to have to pass another approval stage at the State level. It is likely that multi-brand outlets established by ventures having foreign participation would be permitted in six metros, to begin with – these being Bangalore, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. online , buy prozac online uk , prozac buy online uk .
 
To sum up, despite the regulatory hurdles, FDI in multi-brand retail in India will prove very attractive to serious foreign players. However, it needs to be seen how the Government addresses the fear of widespread unemployment and the consequential decline in competitiveness in domestic enterprises manufacturing retail consumer goods.


Source: India Desk News Flash, Noerr LLP

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3 Comments on "Indian Multi-brand Retail to Open Soon?"

  1. Darshan Donni November 25, 2011 at 11:00 am ·

    Looks like the government just pressed the PLAY button on this story. And as expected, the government, the opposition, the media, the retailers are all singing their tunes. It will be interesting to see how this will eventually turn out. The fine print is still not clear.

    I think this has come at the right time as we were seeing a lot of FDI outflow due to the fiscal tightening and the exchange rate. The RBI and the government seem to be playing their cards very cautiously, and trying to balance growth and inflation. I would not be surprised if they use the FDI in insurance to infuse foreign equity if the current measures do not meet expectations.

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