Fresh trouble brews in Starbucks' Indian cuppa

US-based coffee retail chain Starbucks' plans to enter India have been delayed further with the government authorities asking the company to file a new application for getting approval for its proposed venture.

While Starbucks is optimistic about its foray in the country soon, government sources said it needs to send a fresh proposal as there are certain clarifications required on the equity structure proposed by the company.

"Starbucks has asked the regulators to hold its application for the time being. They say the application is being reviewed at their end, as there needs to be some clarification on certain issues," a source said.

When contacted, a Starbucks spokesperson told PTI from Seattle that the company is working closely with concerned authorities on its application to operate single-brand retail stores.

"We have been, and are continuing to be, working closely with the Ministry of Commerce and Industry, and the Foreign Investment Promotion Board (FIPB) to provide additional information that is needed by the Indian government to make a well-informed decision about Starbucks' entry into one of the fastest growing markets in the world," the spokesperson said.

Starbucks had announced its plans to enter India as early as in 2006, after which it sought the approval from FIPB, the nodal authority for foreign investment into the country.

However, its initial application was rejected due to lack of clarity over foreign equity which is under the sectoral cap of 51% in single-brand retail sector.

The company had proposed the name of its Indonesian franchise holder V P Sharma, a non-resident Indian, as one of its partners for Indian venture, but the regulations consider equity held by an NRI as foreign holding, which led to the total foreign equity exceeding the permitted limit.

Subsequently, Starbucks proposed in its latest application Sharma as the majority 51% partner, while naming Kishore Biyani of Future Group as minority shareholder. However, it did not propose any direct holding with itself.

Sources close to the company said Starbucks was toying up with the idea of a franchise model, but it has again decided to go for direct ownership of the Indian stores, which could be the reason for the firm reviewing its application.

Sources said Starbucks has asked regulators that it would soon get back with a new proposal, although it has not proposed any specific timeframe.

"FIPB has asked for certain details on equity structure, which is coming in way of the approval. They need to send a revised proposal for its case to be considered again," the sources added.

"The company is optimistic that we will be able to offer the unique Starbucks Experience in India in the future," the Starbucks spokesperson said.

Starbucks had earlier said it plans to open its first store in the country either in New Delhi or Mumbai by the end of 2007, as part of its aim to expand its presence to 40,000 stores worldwide, half of which would be outside US.

Starbucks plans to open 2,400 new stores worldwide this year alone, including 1,700 in the US.