At least 30% mandatory sourcing from Indian SMEs.
Just a few hours after the finance ministry issued a statement allowing French luxury chain Christian Louboutin to open stores in India, the commerce ministry notified the much-awaited policy permitting up to 100 per cent FDI in single-brand retail, up from 51 per cent. That may have been a coincidence, but the industry is gung ho about the opportunity the policy will bring. Retailers are also viewing the development as a signal on multi-brand retail opening in the near future.
On November 24, the Union Cabinet had decided to allow up to 51 per cent FDI in multi-brand retail and increase the foreign investment level to 100 per cent in single-brand. However, the government was forced to keep in abeyance the multi-brand FDI decision, at least till after the elections in five states, due to political opposition. On single-brand, it waited for the Parliament session to get over before notifying the policy.
| NEW OPPORTUNITY BECKONS |
| LIKELY ENTRANTS Among international firms keen to enter single-brand retail in India |
| * Ikea (Sweden) |
| * GAP (the US) |
| * Arcadia Group (the UK) |
| * Prada (Italy) |
| *Hennes and Mauritz (Sweden) |
| ALREADY PRESENT Among those present through local partnerships |
| * Louis Vuitton (France) |
| * Christian Dior (France) |
| * Jimmy Choo (the UK) |
| * Canali (Italy) |
| * Zara (Spain) |
| * Marks & Spencer (the UK) |
The notification has clarified that any foreign retailer setting up shop in the single-brand category must source at least 30 per cent from Indian small and medium enterprises (SMEs). The issue had turned controversial after a press note circulated by the commerce ministry recently had stated that foreign retailers could source from SMEs across the world. “In respect of proposals involving FDI beyond 51 per cent, there will be mandatory sourcing of at least 30 per cent of the total value of the products sold from Indian small industries/village and cottage industries, artisans and craftsmen,” commerce and industry minister Anand Sharma said on Tuesday.
These SMEs must have a total investment not exceeding $1 million. According to Boston Consulting estimates, FDI worth up to Rs 900 crore may have come into single-brand retail since foreign investment was permitted in the category more than six years ago. The total retail pie in India is around $500 billion (Rs 26.5 lakh crore, approx), of which organised retail is less than 10 per cent. Single-brand is just a small fraction of organised retail at present. But, things are set to change as big global brands, including Ikea, GAP, Prada, Abercrombie, Hennes & Mauritz and Arcadia, may want to set up shop after the policy change. Arvind Singhal, chairman, Technopak Advisors, and a retail expert, however, argued the notification may not bring about any dramatic changes. “Some luxury brands might want to raise stake up to 100 per cent but that will be miniscule. Some others like Ikea may decide to enter the market. Beyond that, I do not envisage any stampede to enter the market,” he said.
Kishore Biyani, Group CEO, Future Group, said the existing companies were not likely to break away from their partners and come on their own immediately. “But over a period of time, they may do that.”
Rajan Bharti Mittal, vice-chairman and MD, Bharti Enterprises, in a cash-and-carry JV with Walmart, said, “We hope this initiative is a precursor to further liberalisation in the sector.” According to Biju Kurien, chief executive, lifestyle, Reliance Retail, there will be greater interest in India from global retailers, especially those wanting complete ownership. Sukanya Dutta Roy, director, consumer goods business, Swarovski India, said, “The format cannot change overnight, but with FDI in single-brand retail coming in, foreign retailers now have the option of setting up their own stores despite having a tie-up.”
The move would change the retail landscape and boost investor sentiment, said Akash Gupt, executive director, PricewaterhouseCoopers.
