The Indian Government's recent announcement to allow foreign
multi-brand retailers to participate in retail joint ventures
(including holding a majority stake) in India paved the way for an
exciting era of new foreign direct investment.
However a mere two weeks after the announcement, the Government,
led by Prime Minister Manmohan Singh (a key driver of the reforms)
was forced to back track on the proposal. Reports indicate this is
largely due to pressure from some of the Government's coalition
members, opposition MPs and Indian trade unions.
The reversal is a major set back to foreign direct investment in
India's massive retail sector, which is estimated to be worth
approximately US$470 billion. Currently, foreign multi-brand
retailers are only permitted to establish joint ventures in India
at a wholesale level. The new reforms would have meant that major
foreign multi-brand retailers (such as Walmart and Tesco) would
have been permitted to establish a retail joint venture with a
local Indian company. The reforms would have also permitted single
brand foreign retailers to own 100% of their operations in India,
rather than only up to a 51% holding in the joint venture.
For the time being, foreign multi-brand retailers wishing to
invest in India will have to continue to invest in joint ventures
at a wholesale level. Single brand retailers may only hold up to
51% of the joint venture with a local Indian partner.
Middletons' India Group will continue to monitor
developments to changes in India's foreign direct investment
policy and will keep you updated.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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