INDIA: Government seeks views on FDI in retail

Posted by Josette Dunn on 9th July 2010

The Indian government has opened up the debate on foreign direct investment (FDI) in multi-brand retail by seeking comments on the issue from a range of stakeholders including overseas retailers and industry associations.Papers released by the Department of Industrial Policy and Promotion suggest that the move would bring economic benefits, reduce prices and could even lead to greater sourcing from India.

Perhaps the biggest beneficiaries would be consumers, it adds, “both global consumers that reap the benefits from global industry restructuring, and consumers in the host countries that see their purchasing power and standards of living improve.”

Foreign retailers are currently allowed to invest up to 51% equity in retail operations for single brand stores like Wal-Mart through its Bharti Wal-Mart operations and Marks & Spencer through its partnership with Reliance Retail.

On the other hand, single format brands are present through 100% owned subsidiaries which focus on product development, sourcing, marketing and distribution, while their exclusive brand stores are operated by franchise partners.

The government is keen to balance efforts to open up the economy with safeguarding the interests of the country’s millions of small family-managed outlets or so-called “mom-and-pop” stores.

There are also concerns that organised retail in India should be allowed to grow and consolidate before being opened up to foreign investors.

But it says FDI in retailing would help develop backward linkages to sources of supply and thus develop a domestic supply chain capable of meeting international standards.

The country, which has around 1.2bn people, offers huge potential for overseas retailers. Consumer spending on clothing and footwear was estimated at INR2,133.4bn (US$45.7bn) in 2008-09, up 67% from INR1,276bn in 2004-05.

Organised retail, however, accounts for less than 5% of the total market.

Views are sought by 31 July.

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