51% multi-brand & 100% single-brand retail FDI pave way for foreign players.
In a big-ticket policy decision, the cabinet on Thursday opened the high-growth retail sector to foreign chains. That means people can soon shop at international department stores such as Walmart, Carrefour and Tesco in India.
The politically sensitive decision to allow up to 51 per cent FDI in multi-brand and 100 per cent in single-brand retail has come a few months ahead of Assembly elections in five states, including Uttar Pradesh. A stormy cabinet meeting, amid protests from UPA allies, cleared the proposal along with a set of stringent riders, which may pose a hurdle to many foreign players. This is the first time since retail FDI was mooted some seven years ago that the proposal reached the cabinet.
| THE STORY SO FAR |
| January 1997 FDI up to 100% allowed under automatic route in cash and carry during H D Deve Gowda’s United Front govt |
| October 2003 German cash-and-carry major Metro becomes the first international chain to enter India |
| January 2006 FDI up to 51% allowed in single-brand retail and cash-and-carry rules relaxed, under the UPA-I regime with Manmohan Singh as the PM |
| November 2006 American major Walmart and Bharti Enterprises sign an agreement for retail space |
| August 2007 Walmart and Bharti announce JV in cash-and-carry business |
| August 2008 UK-based Tesco enters pact with Tata group’s Trent |
| December 2010 French retail major Carrefour opens first cash-and-carry store in India |
Almost five years ago, to get a feel of things, the government had commissioned economic think tank Icrier to assess the impact of organised retail on neighbourhood mom-and-pop or kirana stores. Even as the report had concluded in May 2008 that the impact of modern retail on the profitability of small stores would wear off with time, the government could not muster the courage to allow FDI in multi-brand retail for fear of hurting small traders, an important vote bank.
But, to curb inflation and disassociate itself from the ‘policy paralysis’ tag, the UPA regime has finally taken a call. Commerce and industry minister Anand Sharma will address Parliament on the matter tomorrow. The opening of multi-brand retail is expected to bring down inflation and the inflow of foreign funds may help finance the current account deficit. However, foreign investment may not come in a hurry, going by the global economic outlook at present.
Anshul Jain, CEO (India) of DTZ, an international real estate consultant, pointed out international retailers would take 12-18 months from the time of the decision to actually enter India. As for the global players who are already in India, they may take up to a year to start multi-brand operations after re-negotiating with their Indian partners. 2012 is likely to be a tight year from the retail perspective due to the economic conditions globally, Jain says, pointing out that India will watch real action only from 2013. Retail is estimated to be a $590 billion industry in India, and growth opportunities are immense, say analysts. International research firm Nielsen said in a recent study that retail was a big opportunity as India’s consumer confidence was the highest in the world, way ahead of China’s. That is despite the global economic slowdown.
Many of the top retailers of the world — Walmart, Carrefour, Metro and Tesco — are already in India in some form or the other. In the backdrop of stiff regulations in the multi-brand retail sector, international chains found a foothold in the cash-and-carry business in the country.
| Top 10 international retail chains | |
| WALMART | United States |
| CARREFOUR | France |
| METRO | Germany |
| TESCO | United Kingdom |
| SCHWARTZ | Germany |
| KROGER | United States |
| HOME DEPOT | United States |
| COSTCO | United States |
| ALDI | Germany |
| TARGET | United States |
| Source: Global Powers of Retailing study by Deloitte & Touche Tohmatsu & STORES Media. (Ranking is according to the value of sales) | |
While Germany’s Metro is keen on only the cash-and-carry or wholesale business, others such as American giant Walmart and French retailer Carrefour have been waiting for the government to permit FDI in multi-brand retail. Meanwhile, they set up cash-and-carry stores in India. Even the UK’s Tesco has tied up with Tata Group’s Trent through the franchisee route. There’s no restriction on FDI in the cash-and-carry format. While no FDI was permitted in front-end multi-brand retailing till now, foreign investment was capped at 51 per cent for single-brand retail. The committee of secretaries (CoS) had in July recommended 51 per cent FDI in multi-brand retail, after which there was a lull as far as government action on the policy was concerned.
The Department of Industrial Policy and Promotion (DIPP) under the ministry of commerce and industry had sent the final note to the cabinet last week, suggesting 51 per cent FDI in multi-brand and 100 per cent in single-brand after inter-ministerial consultations. In the single-brand segment, retailers such as Louis Vuitton, Jimmy Choo, Marks & Spencer, Fendi and Zara are among those present in India through the franchisee route. “The move paves the way for the entry of multinational retail giants. It would also benefit existing domestic players on account of advanced technology and much-needed financial support,” said Krishan Malhotra, partner, tax, KPMG.
