The further easing of FDI conditions by the Government of India in
multi-brand retailing, especially the most significant one of relaxation of 30%
sourcing from micro, small and medium enterprise sector is a welcome move. This
will give the required impetus for foreign retailers to revise their strategy
to think of the Indian retail market as an immediate opportunity to invest in.
It was this sourcing condition that was so far perceived by foreign multi-brand
retailers as stringent and difficult to comply with. The liberalization
proposals have come in at the right time. UK based retail consultant, Joseph
Leftwich puts it this way, “Many foreign retailers had nearly relegated India
to a mid-to-long-term ambition and mid-to-long-term means entry into India was
completely off the radar.”
The cabinet also has made it clear that it's enough if the first
tranche of 50% of investment is made in back-end infrastructure out of the 100
mn US dollars investment required mandatorily on the part of multi-brand
foreign retailers to invest in India when they set up shop. This clears
the investment condition absolutely off any ambiguity, for enabling them to
plan their investments in India.
As only 12 states are currently embracing the new FDI policy in
multi-brand retailing, a decision was made by the cabinet to allow states to
let foreign retailers to set up shop even in cities with less than 1 million
population, which was not allowed earlier. This is considered to help foreign
multi-brand retailers to spread wider into various potential smaller towns.
But, it may take time for them to spread wider as we find even domestic
retailers not being able to scale up their expansion into smaller towns.
The clarity of definition made by the Government in the context of
control and ownership norms of governance of foreign organizations today, will
also help foreign retailers to allay any fear relating to ownership,
directorship and control issues.
FDI through the automatic route approved by DIPP for foreign
direct investment in single brand retailing up to 49% will undoubtedly help
many more foreign brands who are keen to set up joint ventures with partners in
India.
Though it has been perceived to have come quite late in the day,
the cabinet decisions made relating to FDI in multi-brand and single brand
retailing will make a positive impact on intending foreign retailers to
hasten their plans to invest in India soon. It is estimated that an investment
of about 2.5 billion to 3 billion USD will be made in India by multi-brand
foreign retailers over a 4-year horizon. It may take such a long time for
investments to come into the country as foreign retailers may take considerable
time to understand the Indian market and its unique and diverse consumer tastes
and preferences before they expand with full throttled ease.
- Dr.
Gibson G. Vedamani
