“Club of Knowledge Hunters”

FDI in Multi-brand Retail in the offing

Posted by superstar23 on November 2, 2008

The global financial mess may have a silver lining for the Foreign Direct Investment in Multi-brand Retail with the government hinting the FDI may soon be allowed though the majority may have to be with the Indian promoters. The global economic turmoil may have achieved what the bureaucrats have not been able to achieve for retail sector in India which has not yet allowed any FDI in multi-brand retail due to strong political opposition, particularly from the Left. who feel  it could ruin livelihood of small traders and people employed with traditional form of retail business.

With fears of more outflow of foreign funds, the government has begun to seriously think in terms of revisiting its policy on FDI in the retail sector, says a report by If allowed, this will encourage inflow of new capital as foreign retail majors are very keen to enter India’s retail sector.

The possibility of wine retail in the regions where it is legally allowed through super markets cannot be ruled out too, thus making availability easier. At the present time, infusion of 100 per cent FDI is allowed only  in ‘cash and carry’ (B2B) retail, with only 51 per cent FD allowed in single brand retail. No FDI is, however, permitted in case of multi-brand retail.

While, companies like Metro AG (Germany) and Shoprite (South Africa) have already taken advantage of 100 per cent FDI in ‘cash and carry’ business and Carrefour (France) and Tesco (UK) have announced their intention to do so, single brand retailers like Marks & Spencer (UK) and Vision Express (Netherlands) have been forced to accept partnerships with local business houses for entry into single brand retail. Given the choice, many of them would have liked to go on their own.

Multi brand retail giants like Wal-Mart, Carrefour, and Tesco, on the other hand, due to current FDI policy, have been compelled to either take franchise route or provide technical (back-end) services. Some have even chosen to wait until the policy is completely changed to meet their requirements.

Although, no major policy decisions are expected as the general elections are due in the next six months, the government is believed to be considering relaxation in FDI norms for both single and multi-brand retail.

Kamal Nath, the union minister of commerce and industries, at a recent trade conference in Paris, had announced that the government is seriously considering permitting up to 100 per cent FDI (as against 51 per cent at present) in single brand retail, specifically in the area of luxury retail. The official line so far has been to consider allowing 100 per cent FDI in single brand retail in the segments that do not adversely affect local employment.

It is also believed that, despite pronouncements to the contrary, the commerce ministry has mooted a proposal that seeks to allow up to 49 per cent (as against Zero per cent at present) FDI in multi-brand retail.



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