Last week the Indian Government cabinet decided to further open
up India's burgeoning retail sector to foreign
investors.Although much of the media discussion has centred around
supermarkets, there is also a significant opportunity for brands
seeking to establish retail outlets in the world's second most
The latest proposed reforms will allow:
foreign direct investment (FDI) up to 51 per cent in
multi-brand retail subject to certain minimum investment
minimum investment of US$100 million, 50 per cent to be
invested in back-end areas - transport, storage and other
at least 30 per cent of produce sourced would have to come from
small or medium-scale industries
stores can only be in cities where there are more than one
up to 100 per cent FDI in single brand retail.
The proposed reforms follow earlier reforms introduced in 2006
that allow foreign retailers to invest up to 51 per cent in
single-brand retail and up to 100 per cent in wholesale and
cash-and-carry businesses.FDI in multi-brand retail is totally
closed to foreign investors.
What the changes mean
Although the policy detail is yet to come, it would appear that
the proposed changes will mean multi-brand foreign retailers will
be able to partner with Indian companies to own and operate retail
businesses in India, provided they comply with the minimum
investment conditions. This will be attractive to large-scale
foreign retailers, such as supermarkets and department stores, and
to multi-brand foreign retailers that are currently restricted to
operating wholesale businesses in India.
For single-brand foreign retailers, the proposed change allowing
100 per cent FDI (up from 51 per cent) will mean that those
retailers can fully own and operate retail stores selling their
single-branded products. In addition to benefiting corporate retail
chains, this development will benefit franchise systems seeking to
prove their concepts in the market prior to commencing
The reforms are aimed at increasing competition, improving
efficiency in India's fresh food supply chain, improving the
livelihood of India's farmers and reducing inflation.
Obstacles to reform
Liberalisation of the retail sector has been, and still is, a
sensitive issue in India. There have been widespread fears that the
entry of foreign retailers will severely impact India's small
retailers that dominate the sector. Since the proposed reforms were
announced, there have been raucous scenes in parliament, with
opposition political parties demanding a "roll-back" of
the decision and stalling parliamentary proceedings. Several Indian
state governments have also said that they will not permit global
chains to operate in their cities.˙However the supermarket
chains have been the primary focus of the protests.
It remains to be seen whether the Congress Party led Government
will have the political will and necessary support to implement the
reforms. Given the lack of policy detail and the political backlash
caused by the proposed reforms some foreign retailers are taking a
"wait-and-see" approach at this stage. However the
extension of the single-brand percentage from 51 per cent to 100
per cent is not anywhere near as contentious as the multi-brand
decision, and the changes may be a timely signal to foreign
retailers to step up their preparatory efforts.
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