Multi-brand retail FDI off, single-brand coming 100%

Oppn placated on multi-brand FDI, single-brand policy to be notified during Winter session.

The UPA government on Wednesday formally put on hold the 13-day-old cabinet decision to allow up to 51 per cent FDI in multi-brand retail. The decision is unlikely to be revisited before the next financial year. While buying peace with the Opposition and allies at the cost of multi-brand retail FDI, the government opted to go ahead with the other part of the cabinet decision of November 24: raising the foreign investment level for single-brand retail to 100 per cent, from 51 per cent now. Retail in India, mostly an unorganised business, is an estimated $590 billion market.

Indications are the government is likely to take a positive decision on multi-brand retail FDI around April-May 2012, after the Uttar Pradesh assembly elections. Till then, consensus-building and back-channel negotiations would continue on the matter, say people in the know. The FDI level may have to be tweaked to bring it down to 49 per cent or even lower in the multi-brand category. In fact, suggestions have started coming already from the industry to bring 49 per cent FDI in multi-brand retail.

INDIAN DREAM BECKONS

Prominent single-brand firms keen on an India entry include:

Ikea (Sweden)

GAP (the US)

Arcadia Group (the UK)

Prada (Italy)

Hennes and Mauritz (Sweden)

Global players already in India through local partnerships include:

Louis Vuitton (France)

Christian Dior (France)

Jimmy Choo (the UK)

Canali (Italy)

Zara (Spain)

Marks & Spencer (the UK)

A senior official in the ministry of commerce and industry confirmed the government was going ahead with raising the FDI limit for single-brand retail to 100 per cent. The official said the government was likely to notify the new rules within a couple of weeks.

That means before the present session of Parliament gets over.

In the cabinet note, the condition of 30 per cent sourcing from the small-scale sector is also applicable for single-brand retail. It will become applicable the moment foreign equity exceeds 51 per cent.

After the all-party meeting this morning, finance minister Pranab Mukherjee announced in the Lok Sabha that the multi-brand FDI decision had been suspended till a consensus was reached with all parties and stakeholders. “The stakeholders include political parties and states,” Mukherjee said. Leader of the Opposition in the Lok Sabha and BJP member Sushma Swaraj called it a victory of the democratic process.

While the largest retailer of the world, US-based Walmart, issued a cautious statement on Wednesday, saying it respected the government decision, its India partner, Bharti, was more open in its criticism of the move. Rajan Bharti Mittal, vice-chairman and MD, Bharti Enterprises, said, “It is unfortunate such an important and much needed economic reform has been suspended.” The two have a JV in India for cash-and-carry (wholesale) operations, and want to extend the relationship to front-end multi-brand retail as well.

French retail major, Carrefour, which is also present in India in the cash-and-carry space and is looking to enter the front-end multi-brand segment, preferred to remain quiet after the government decision. Earlier, it had welcomed the move to open Indian retail. An industry representative pointed out Carrefour would continue with its focus on cash and carry, and wait and watch the situation in multi-brand retail.

Kishore Biyani, CEO, Future Group, told Business Standard, "We are appealing to the government to open up FDI in non-food sectors, as there are no contentious issues there."

Ficci president Harsh Mariwala called the government decision "deeply disappointing". "It is a highly regressive move," he said. Chandrajit Banerjee, director general, CII, was critical of the government move on multi-brand retail, saying, "The decision will have a strong impact on investor sentiment and also foreign investors."Traders' associations, which had agitated across the country recently against the proposed FDI in multi-brand retail, are in a mood to celebrate now. They will hold a press conference tomorrow to announce their victory.

As against the gloom in companies aspiring to expand or enter the multi-brand segment, it was a day to rejoice for single-brand companies. Marks & Spencer, which has a JV with Reliance Retail, said India was an extremely important market for the company. "Our journey in India has been exciting so far and our joint venture partner Reliance Retail has helped us transform our position in this dynamic market," a company official said, adding, "We are very happy with our current relationship with Reliance Retail and don't plan to do anything differently following the recent announcements on FDI." People close to the company said it was already sourcing more than 50 per cent from the Indian market. Ikea, the Scandinavian furniture company, which was waiting for clarity on the government decision, can now go ahead and roll out its India operations. The company's first attempt in India had not worked out. According to Rajesh Jain, director & CEO, Lacoste, another single-brand retailer, "100 per cent FDI in single-brand retail will not make too much of a difference as it is not as capital-intensive as multi-brand retail."

At present, up to 100 per cent FDI is allowed in cash and carry segment, and 51 per cent in single brand. No foreign investment is permitted in multi-brand retail.